lg electronics · other financial assets 5,7,31 13,541 17,430 inventories 8 6,288,079 4,838,830 ......

LG ElectronicsInterim Consolidated Financial StatementsSeptember 30, 2014 and 2013

1

Page(s)

Report on Review of Interim Financial Statements ............................................. 1 - 2

Interim Consolidated Financial Statements

Interim Consolidated Statements of Financial Position ............................................ 3

Interim Consolidated Statements of Income ............................................................ 4

Interim Consolidated Statements of Comprehensive Income .................................... 5

Interim Consolidated Statements of Changes in Equity ........................................... 6

Interim Consolidated Statements of Cash Flows ...................................................... 7

Notes to the Interim Consolidated Financial Statements .......................................... 8 - 95

LG ElectronicsInterim Consolidated Statements of Financial Position

September 30, 2014 and December 31, 2013

(in millions of Korean won) Note

Assets

Current assetsCash and cash equivalents 5,31 2,949,709 2,645,270Financial deposits 5,31 67,700 67,896Trade receivables 5,6,31 8,277,702 7,117,402Loans and other receivables 5,31 545,112 596,505Other financial assets 5,7,31 13,541 17,430Inventories 8 6,288,079 4,838,830Current income tax assets 209,450 116,254Other current assets 969,537 925,471

19,320,830 16,325,058

Non-current assetsFinancial deposits 5,31 81,641 96,992Loans and other receivables 5,31 564,494 601,978Other financial assets 5,7,31 53,302 55,714Property, plant and equipment 9 10,504,096 10,341,993Intangible assets 9 1,309,429 1,363,690Deferred income tax assets 25 1,476,438 1,619,551Investments in associates and joint ventures 10 4,450,695 4,329,583Investment property 2,969 4,923Other non-current assets 739,570 788,582

19,182,634 19,203,006Total assets 38,503,464 35,528,064Liabilities

Current liabilities

Trade payables 5,31 7,404,914 5,691,114Borrowings 5,11,31 2,781,234 3,022,723Other payables 5,31 2,448,853 2,829,686Other financial liabilities 5,7,31 2,753 10,890Current income tax liabilities 60,345 74,131Provisions 13 684,578 663,701Other current liabilities 3,215,889 2,721,759

16,598,566 15,014,004Non-current liabilities

Borrowings 5,11,31 6,648,445 6,188,306Other payables 5,31 17,162 27,670Other financial liabilities 5,7,31 63,248 10,663Deferred income tax liabilities 25 7,021 7,651Net defined benefit liability 12 928,520 580,919Provisions 13 974,579 998,795Other non-current liabilities 10,332 10,687

8,649,307 7,824,691Total liabilities 25,247,873 22,838,695Equity attributable to owners of the Parent Company

Paid-in capital: 14

Capital stock 904,169 904,169

Share premium 3,088,179 3,088,179

Retained earnings 15 9,380,546 8,885,523Accumulated other comprehensive loss 16 (1,172,307) (907,440)Other components of equity 17 (210,249) (231,229)

11,990,338 11,739,202Non-controlling interests 1,265,253 950,167Total equity 13,255,591 12,689,369Total liabilities and equity 38,503,464 35,528,064

September 30, 2014 December 31, 2013

The accompanying notes are an integral part of these interim consolidated financial statements.

3

LG ElectronicsInterim Consolidated Statements of Income

Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

Note Three months Nine months Three months Nine months

Net sales 18 14,916,366 44,565,652 13,892,152 43,225,067

Cost of sales 19 11,325,204 33,982,826 10,599,295 33,116,561

Gross profit 3,591,162 10,582,826 3,292,857 10,108,506

Selling and marketing expenses 19,20 1,833,891 5,289,451 1,770,759 5,185,748

Administrative expenses 19,20 339,047 987,984 331,167 1,017,350

Research and development expenses 19,20 578,841 1,710,651 587,229 1,781,595

Service costs 19,20 378,112 1,023,256 385,907 1,077,252

Operating income 461,271 1,571,484 217,795 1,046,561

Financial income 21 124,974 295,942 75,505 311,606

Financial expenses 22 202,422 590,846 190,201 612,682

Gain from equity method valuation 10 120,663 164,368 85,867 95,225

Other non-operating income 23 251,826 875,981 339,886 943,793

Other non-operating expenses 24 506,622 1,172,204 389,562 1,235,993

Profit before income tax 249,690 1,144,725 139,290 548,510Income tax expense 25 47,041 437,676 30,745 262,359

Profit for the period 202,649 707,049 108,545 286,151

Profit for the period attributable to:

Equity holders of the Parent Company 159,684 603,684 83,992 240,196Non-controlling interests 42,965 103,365 24,553 45,955

Earnings per share attributableto the equity holders of the Parent

Company during the period (in won): 26

Earnings per share for profit attributable tothe common equity holders of the Parent Company 886 3,349 465 1,330

Earnings per share for profit attributable tothe preferred equity holders of the Parent Company 899 3,387 478 1,368

(in millions of Korean won, except per share amounts)

20132014


4

LG ElectronicsInterim Consolidated Statements of Comprehensive Income

Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

Note Three months Nine months Three months Nine months


Other comprehensive income(loss), net of tax

Items that will not be reclassified subsequently to profit or loss:

Remeasurements of the net defined benefit liability 12 (47,700) (76,841) 2,045 14,881

Share of remeasurements for the net defined benefit liability of associates 10 (101) (1,054) (29) 82

Items that will be reclassified subsequently to profit or loss:

Share of other comprehensive income or loss(excluding

remeasurements) of associates and joint ventures10 42,646 (32,620) (66,705) (3,314)

Cash flow hedges 31 (11,884) (25,851) 11,597 7,404

Available-for-sale financial assets 7 (512) (1,216) 93 2,773

Currency translation differences 13,739 (215,566) (352,524) (107,997)

Other comprehensive loss for the period, net of tax (3,812) (353,148) (405,523) (86,171)

Total comprehensive income(loss) for the period, net of tax 198,837 353,901 (296,978) 199,980

Comprehensive income(loss) for the period, net of tax,attributable to:

Equity holders of the Parent Company 140,822 267,028 (295,161) 146,437Non-controlling interests 58,015 86,873 (1,817) 53,543

Total comprehensive income(loss) for the period, net of tax 198,837 353,901 (296,978) 199,980

(in millions of Korean won)

2014 2013


5

LG Electronics

Interim Consolidated Statements of Changes in Equity

Nine-Month Periods Ended September 30, 2014 and 2013


Balance at January 1, 2013 3,992,348 9,407,667 (674,221) (271,382) 12,454,412 249,805 12,704,217The effect of enactment of Korean IFRS 1110 - (683,717) (877) 29,271 (655,323) 656,853 1,530Restated amount 3,992,348 8,723,950 (675,098) (242,111) 11,799,089 906,658 12,705,747Comprehensive income:

Profit for the period - 240,196 - - 240,196 45,955 286,151Remeasurements of the net defined benefit liability 12 - 13,974 - - 13,974 907 14,881Share of remeasurements for

the net defined benefit liability of associates 10 - 82 - - 82 - 82Share of other comprehensive income(excluding remeasurements) ofassociates and joint ventures 10 - - (3,314) - (3,314) - (3,314)

Cash flow hedges 31 - - 7,404 - 7,404 - 7,404Available-for-sale financial assets 7 - - 2,848 - 2,848 (75) 2,773Currency translation differences - - (114,753) - (114,753) 6,756 (107,997)

Total comprehensive income - 254,252 (107,815) - 146,437 53,543 199,980

Transactions with equity holders:Dividends - (36,872) - - (36,872) (13,208) (50,080)Changes in controlling interests in subsidiaries - - - 10,881 10,881 11,816 22,697

Total transactions with equity holders - (36,872) - 10,881 (25,991) (1,392) (27,383)Balance at September 30, 2013 3,992,348 8,941,330 (782,913) (231,230) 11,919,535 958,809 12,878,344

Balance at January 1, 2014 3,992,348 8,885,523 (907,440) (231,229) 11,739,202 950,167 12,689,369

Comprehensive income:Profit for the period - 603,684 - - 603,684 103,365 707,049Remeasurements of the net defined benefit liability 12 - (70,735) - - (70,735) (6,106) (76,841)Share of remeasurements for

the net defined benefit liability of associates 10 - (1,054) - - (1,054) - (1,054)Share of other comprehensive loss(excluding remeasurements) ofassociates and joint ventures 10 - - (32,620) - (32,620) - (32,620)

Cash flow hedges 31 - - (25,851) - (25,851) - (25,851)Available-for-sale financial assets 7 - - (1,115) - (1,115) (101) (1,216)Currency translation differences - - (205,281) - (205,281) (10,285) (215,566)

Total comprehensive income - 531,895 (264,867) - 267,028 86,873 353,901

Transactions with equity holders:Dividends - (36,872) - - (36,872) (28,555) (65,427)Changes in controlling interests in subsidiaries - - - 20,980 20,980 256,768 277,748

Total transactions with equity holders - (36,872) - 20,980 (15,892) 228,213 212,321Balance at September 30, 2014 3,992,348 9,380,546 (1,172,307) (210,249) 11,990,338 1,265,253 13,255,591

Non-controllingInterests

TotalEquity

Attributable to equity holders of the Parent Company

Accumulated

ComponentsTotalEarnings

Other

Income(loss)Comprehensive

Other

Capital of EquityPaid-in Retained


6

LG ElectronicsInterim Consolidated Statements of Cash FlowsNine-Month Periods Ended September 30, 2014 and 2013


Cash flows from operating activitiesCash generated from operations 27 2,323,091 2,104,005Interest received 57,343 55,751Interest paid (330,477) (284,543)Dividend received 17,359 10,577Income tax paid (391,784) (331,583)

Net cash generated from operating activities 1,675,532 1,554,207

Cash flows from investing activitiesDecrease in financial deposits 31,467 14,040Decrease in loans and other receivables 161,153 177,832Proceeds from redemption and disposal of other financial assets 31,917 81,383Proceeds from disposal of property, plant and equipment 82,887 50,400Proceeds from disposal of intangible assets 16,687 2,824Proceeds from redemption and disposal of investments

in associates and joint ventures 680 -Decrease in others 3,948 16,277Increase in financial deposits (17,715) (22,569)Increase in loans and other receivables (125,203) (147,095)Acquisition of other financial assets (38,307) (17,734)Acquisition of property, plant and equipment (1,580,895) (1,622,076)Acquisition of intangible assets (330,115) (310,045)Acquisition of investments in associates and joint ventures (7,782) (46,628)Decrease in cash and cash equivalents due to changes in scope of

subsidiaries - (3,822)Increase in others (414) (75)

Net cash used in investing activities (1,771,692) (1,827,288)

Cash flows from financing activitiesProceeds from borrowings 5,100,944 3,005,224Repayments of borrowings (4,536,014) (2,516,446)Dividends paid (65,621) (50,131)

Net cash provided by financing activities 499,309 438,647

Exchange losses on cash and cash equivalents (98,710) (11,458)

Net increase in cash and cash equivalents 304,439 154,108Cash and cash equivalents at the beginning of period 2,645,270 2,185,000Cash and cash equivalents at the end of period 2,949,709 2,339,108

20132014Nine-Month Period Ended September 30


7

LG ElectronicsNotes to the Interim Consolidated Financial StatementsSeptember 30, 2014 and 2013, and December 31, 2013

8

1. General Information

LG Electronics Inc.(the Parent Company) was spun off from LG Electronics Investment Ltd. on

April 1, 2002. The Parent Company’s shares are listed on the Korea Exchange, and some of its

preferred shares, in form of global depositary receipts (“DRs”), are listed on the London Stock

Exchange as of the reporting date. The Parent Company is domiciled in Korea at Yeoui-daero,

Yeungdeungpo-gu, Seoul.

As of September 30, 2014, LG Corp. owns 33.7% of the Parent Company’s total shares, excluding

preferred shares, while financial institutions, foreign investors and others own the rest.

The Group is engaged in the manufacture and sale of electronic products including mobile phones,

TV, air conditioners, refrigerators, washing machines, personal computers and their core parts. As

of September 30, 2014, the Group operates six business segments and other supporting segments

through the Parent Company and subsidiaries all over the world. The Parent Company as of

September 30, 2014, has 141 subsidiaries and its consolidated subsidiaries as of September 30,

2014, are as follows:


9

(a) Consolidated subsidiaries as of September 30, 2014 and December 31, 2013, are as follows:


Percentage of ownership Percentage of ownership

Territory Location SubsidiariesControlling

interest

Non-controlling

interestControlling

interest

Non-controlling

interestClosingMonth Major Business Basis of control

The Republicof Korea

Korea Hiplaza Co., Ltd. 100.0% - 100.0% - DecemberWholesales and retails

of electronic products

More than half of

voting rights

KoreaHi Business Logistics Co.,

Ltd.100.0% - 100.0% - December Services of logistics

More than half of

voting rights

Korea Hi Entech Co., Ltd. 100.0% - 100.0% - December Water engineeringMore than half of

voting rights

KoreaLG Hitachi Water Solution

Co., Ltd.51.0% 49.0% 51.0% 49.0% December Water treatment

More than half of

voting rights

Korea ACE R&A Co., Ltd. 100.0% - 100.0% - DecemberProduction and sales of

air conditioner

More than half of

voting rights

Korea Hi M Solutek 100.0% - 100.0% - December MaintenanceMore than half of

voting rights

Korea Hi Teleservice Co., Ltd. 100.0% - 100.0% - December Marketing servicesMore than half of

voting rights

Korea LGE Alliance Fund 96.2% 3.8% 96.2% 3.8% December InvestmentMore than half of

voting rights

Korea Innovation Investment Fund 83.3% 16.7% 83.3% 16.7% December InvestmentMore than half of

voting rights

Korea LG Innotek Co., Ltd.140.8% 59.2% 47.9% 52.1% December

Production and sales of

electronic materialsDe-facto control

Korea LG Innotek Alliance Fund140.4% 59.6% 47.4% 52.6% December Investment De-facto control

Korea Innowith Co., Ltd.140.8% 59.2% 47.9% 52.1% December Cleaning services De-facto control

Korea Hanuri Co., Ltd. 100.0% - 100.0% - December Cleaning servicesMore than half of

voting rights


10




interest

Non-controlling

interestControlling

interest

Non-controlling


Korea LGE Alliance Fund Ⅱ 98.7% 1.3% 98.7% 1.3% December InvestmentMore than half of

voting rights

China China Hi Logistics (China) Co., Ltd. 100.0% - 100.0% - December Services of logisticsMore than half of

voting rights

China

Inspur LG Digital Mobile

Communications Co.,

Ltd.(LGEYT)

70.0% 30.0% 70.0% 30.0% DecemberProduction of

electronic products

More than half of

voting rights

ChinaLG Electronics (China) Co.,

Ltd.(LGECH)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

China

LG Electronics (China)

Research and

Development Centre Co.,

Ltd.(LGERD)

100.0% - 100.0% - December R&DMore than half of

voting rights

ChinaLG Electronics (Hangzhou)

Co., Ltd.(LGEHN)70.0% 30.0% 70.0% 30.0% December

Production of

electronic products

More than half of

voting rights

China

LG Electronics (Kunshan)

Computer Co.,

Ltd.(LGEKS)

100.0% - 100.0% - DecemberProduction of

electronic products

More than half of

voting rights

China

LG Electronics (Shanghai)

Research and

Development Center Co.,

Ltd.(LGCRC)


voting rights

China

LG Electronics Air-

Conditioning(Shandong)

Co., Ltd.(LGEQA)

100.0% - 100.0% - DecemberProduction and sales of

electronic products

More than half of

voting rights

ChinaLG Electronics HK

Ltd.(LGEHK)100.0% - 100.0% - December Sales of

electronic products

More than half of

voting rights


11




interest

Non-controlling

interestControlling

interest

Non-controlling


ChinaLG Electronics Huizhou

Ltd.(LGEHZ)80.0% 20.0% 80.0% 20.0% December

Production of

electronic products

More than half of

voting rights

ChinaLG Electronics Nanjing

Display Co., Ltd.(LGEND)70.0% 30.0% 70.0% 30.0% December

Production of

electronic products

More than half of

voting rights

ChinaLG Electronics Qinhuangdao

Inc.(LGEQH)100.0% - 100.0% - December Production of casting

More than half of

voting rights

ChinaLG Electronics Shenyang

Inc.(LGESY)78.9% 21.1% 78.9% 21.1% December

Production of

electronic products

More than half of

voting rights

China

LG Electronics Tianjin

Appliances Co.,

Ltd.(LGETA)


electronic products

More than half of

voting rights

China

NanJing LG-Panda

Appliances Co.,

Ltd.(LGEPN)


electronic products

More than half of

voting rights

China

Qingdao LG Inspur Digital

Communication Co.,

Ltd.(LGEQD)


electronic products

More than half of

voting rights

ChinaShanghai LG Electronics

Co., Ltd.(LGESH)70.0% 30.0% 70.0% 30.0% December

Production of

electronic products

More than half of

voting rights

China

Taizhou LG Electronics

Refrigeration Co.,

Ltd.(LGETR)


electronic products

More than half of

voting rights

ChinaTianjin Lijie Cartridge Heater

Co., Ltd.(LGETL)66.7% 33.3% 66.7% 33.3% December Production of heater

More than half of

voting rights

ChinaLG Innotek (Yantai) Co.,

Ltd.(LGITYT)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of


ChinaLG Innotek (Huizhou) Co.,

Ltd.(LGITHZ)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of



12




interest

Non-controlling

interestControlling

interest

Non-controlling


ChinaLG Innotek (Fuzhou) Co.,

Ltd.(LGITFZ)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of


ChinaLG Innotek (Guangzhou)

Co., Ltd.(LGITGZ)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of


China

LG Innotek Trading

(Shanghai) Co.,

Ltd.(LGITSH)1

40.8% 59.2% 47.9% 52.1% DecemberSales of


China HiEntech (Tianjin) Co., LTD. 100.0% - 100.0% - December Water engineeringMore than half of

voting rights

ChinaVENS BEIJING VEHICLE

ENGINEERING CO.,LTD100.0% - 100.0% - December

Automotive

engineering

More than half of

voting rights

Asia AustraliaLG Electronics Australia Pty,

Ltd.(LGEAP)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

IndiaLG Electronics India Pvt.

Ltd.(LGEIL)4 100.0% - 100.0% - MarchProduction and sales of

electronic products

More than half of

voting rights

JapanLG Electronics Japan Lab.

Inc.(LGEJL)100.0% - 100.0% - December R&D

More than half of

voting rights

JapanLG Electronics Japan,

Inc.(LGEJP)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

MalaysiaLG Electronics Malaysia

SDN. BHD(LGEML)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PhilippinesLG Electronics Philippines

Inc.(LGEPH)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

SingaporeLG Electronics Singapore

PTE LTD.(LGESL)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

TaiwanLG Electronics Taiwan

Taipei Co., Ltd.(LGETT)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

ThailandLG Electronics Thailand Co.,

Ltd.(LGETH)100.0% - 100.0% - December


electronic products

More than half of

voting rights


13




interest

Non-controlling

interestControlling

interest

Non-controlling


VietnamLG Electronics Vietnam Co.,

Ltd.(LGEVN)100.0% - 100.0% - December


electronic products

More than half of

voting rights

IndiaLG Soft India Private

Limited.(LGSI)4 100.0% - 100.0% - March R&DMore than half of

voting rights

IndonesiaP.T. LG Electronics

Indonesia(LGEIN)100.0% 0.0% 100.0% - December


electronic products

More than half of

voting rights

Philippines LG Electronics Pasig Inc.338.0% 62.0% 38.0% 62.0% December Real estates De-facto control

IndiaHi Logistics India Private

Limited4 100.0% - 100.0% - March Services of logisticsMore than half of

voting rights

MalaysiaHI LOGISTICS MALAYSIA

SDN BHD100.0% - 100.0% - December Services of logistics

More than half of

voting rights

IndonesiaPT LG Innotek

Indonesia(LGITIN)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of

electronic materials De-facto control

TaiwanLG Innotek (Taiwan)

Ltd.(LGITTW)1 40.8% 59.2% 47.9% 52.1% DecemberSales of


Malaysia V-ENS (M) Sdn. Bhd. 100.0% - 100.0% - DecemberAutomotive

engineering

More than half of

voting rights

Vietnam

LG Electronics Vietnam

Haiphong Co.,

Ltd.(LGEVH)


electronic products

More than half of

voting rights

IndonesiaPT.LG Electronics Service

Indonesia(LGEID)99.8% 0.2% - - December Services

More than half of

voting rights

VietnamHi Logistics Vietnam Co.,

LTD.100.0% - - - December Services of logistics

More than half of

voting rights


14




interest

Non-controlling

interestControlling

interest

Non-controlling


Europe Netherlands Hi Logistics Europe B.V. 100.0% - 100.0% - December Services of logisticsMore than half of

voting rights

AustriaLG Electronics Austria

GmbH(LGEAG)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

NetherlandsLG Electronics Benelux

Sales B.V.(LGEBN)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

Czech RepublicLG Electronics CZ,

s.r.o.(LGECZ)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

GermanyLG Electronics Deutschland

GmbH(LGEDG)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

SpainLG Electronics Espana

S.A.(LGEES)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

NetherlandsLG Electronics European

Holdings B.V.(LGEEH)100.0% - 100.0% - December European holding

More than half of

voting rights

Netherlands

LG Electronics European

Shared Service Center

B.V.(LGESC)

100.0% - 100.0% - December ServicesMore than half of

voting rights

FranceLG Electronics France

S.A.S.(LGEFS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

GreeceLG Electronics Hellas

S.A.(LGEHS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

ItalyLG Electronics Italia

S.p.A(LGEIS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

LatviaLG Electronics Latvia,

LLC(LGELA)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

HungaryLG Electronics Magyar

KFT(LGEMK)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PolandLG Electronics Mlawa Sp. z

o.o(LGEMA)100.0% - 100.0% - December

Production of

electronic products

More than half of

voting rights


15




interest

Non-controlling

interestControlling

interest

Non-controlling


FranceLG Electronics Mobilecomm

France(LGEMF)100.0% - 100.0% - December R&D

More than half of

voting rights

SwedenLG Electronics Nordic

AB(LGESW)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

NorwayLG Electronics Norway

AS(LGENO)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PolandLG Electronics Polska Sp. z

o.o(LGEPL)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PortugalLG Electronics Portugal

S.A.(LGEPT)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

RomaniaLG Electronics Romania

S.R.L.(LGERO)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

UKLG Electronics United

Kingdom Ltd.(LGEUK)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PolandLG Electronics Wroclaw Sp.z

o.o(LGEWR)100.0% - 100.0% - December

Production of

electronic products

More than half of

voting rights

PolandLG Innotek Poland Sp z

o.o.(LGITPO)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of

electronic metarialsDe-facto control

North America USALG Electronics Miami

Inc.(LGEMI)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

USALG Electronics Alabama

Inc.(LGEAI)100.0% - 100.0% - December Services

More than half of

voting rights

CanadaLG Electronics Canada,

Inc.(LGECI)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

MexicoLG Electronics Mexicalli,

S.A. DE C.V.(LGEMX)100.0% - 100.0% - December

Production of

electronic products

More than half of

voting rights

MexicoLG Electronics Mexico S.A.

DE C.V.(LGEMS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights


16




interest

Non-controlling

interestControlling

interest

Non-controlling


USA

LG Electronics Mobile

Research U.S.A.,

L.L.C.(LGEMR)


voting rights

USALG Electronics Mobilecomm

U.S.A., Inc.(LGEMU)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

Mexico

LG Electronics Monterrey

Mexico S.A.de

C.V.(LGEMM)


electronic products

More than half of

voting rights

MexicoLG Electronics Reynosa S.A.

DE C.V.(LGERS)100.0% - 100.0% - December

Production of

electronic products

More than half of

voting rights

USALG Electronics U.S.A.,

Inc.(LGEUS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

MexicoServicios Integrales LG S.A

DE C.V100.0% - 100.0% - December Services

More than half of

voting rights

MexicoServicios LG Monterrey

Mexico S.A. de C.V.100.0% - 100.0% - December Services

More than half of

voting rights

USA

Zenith Electronics

Corporation of

Pennsylvania


electronic products

More than half of

voting rights

USAZenith Electronics

Corporation(Zenith)100.0% - 100.0% - December R&D

More than half of

voting rights

USALG Innotek USA,

Inc.(LGITUS)1 40.8% 59.2% 47.9% 52.1% DecemberSales of

electronic productsDe-facto control

MexicoHILOGISTICS MEXICO SA

DE CV100.0% - 100.0% - December Services of logistics

More than half of

voting rights

Mexico HiLogistics Reynosa 100.0% - 100.0% - December Services of logisticsMore than half of

voting rights


17




interest

Non-controlling

interestControlling

interest

Non-controlling


USA HiLogistics USA 100.0% - 100.0% - December Services of logisticsMore than half of

voting rights

MexicoLG Innotek Mexico SA DE

CV(LGITMX)1 40.8% 59.2% 47.9% 52.1% DecemberProduction and sales of

automotive materialsDe-facto control

South America Brazil LG Armagem Geral Ltda. 100.0% - 100.0% - December ServicesMore than half of

voting rights

ArgentinaLG Electronics Argentina

S.A.(LGEAR)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

ColombiaLG Electronics Colombia

Ltda.(LGECB)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

BrazilLG Electronics do Brasil

Ltda.(LGEBR)100.0% - 100.0% - December


electronic products

More than half of

voting rights

HondurasLG Electronics Honduras

S.de R.L.2 20.0% 80.0% 20.0% 80.0% DecemberSales of

electronic productsDe-facto control

ChileLG Electronics Inc Chile

Ltda.(LGECL)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PanamaLG Electronics Panama,

S.A.(LGEPS)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

PeruLG Electronics Peru

S.A.(LGEPR)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

VenezuelaLG Electronics Venezuela

S.A.(LGEVZ)100.0% - 100.0% -

December Sales of

electronic products

More than half of

voting rights

Brazil SOCIO VIP Ltda. 100.0% - 100.0% -December Services

More than half of

voting rights

Panama C&S America Solutions 100.0% - 100.0% -December Services

More than half of

voting rights

Panama LG Consulting Corp. 100.0% - 100.0% -December Services

More than half of

voting rights


18




interest

Non-controlling

interestControlling

interest

Non-controlling


GuatemalaLG Electronics Guatemala

S.A.100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

Middle Eastand Africa Nigeria

Easytec Global Services

Innovation Limited100.0% - 100.0% - December Services

More than half of

voting rights

AngolaLG Electronics Angola

Limitada(LGEAO)100.0% - 100.0% - December

Sales and services of

electronic products

More than half of

voting rights

JordanLG Electronics (Levant)

Jordan(LGELF)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

UAELG Electronics Africa

Logistics FZE(LGEAF)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

AlgeriaLG Electronics Algeria

SARL(LGEAS)70.0% 30.0% 70.0% 30.0% December

Sales of

electronic products

More than half of

voting rights

UAELG Electronics Dubai

FZE(LGEDF)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

EgyptLG Electronics Egypt

S.A.E(LGEEG)100.0% - 100.0% - December


electronic products

More than half of

voting rights

UAELG Electronics Gulf

FZE(LGEGF)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

UAELG Electronics Middle East

Co., Ltd.(LGEME)100.0% - 100.0% - December Services

More than half of

voting rights

MoroccoLG Electronics Morocco

S.A.R.L(LGEMC)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

NigeriaLG Electronics Nigeria

Limited(LGENI)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

TunisiaLG Electronics North Africa

Service Company S.A.R.L100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

UAELG Electronics Overseas

Trading FZE(LGEOT)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights


19




interest

Non-controlling

interestControlling

interest

Non-controlling


South AfricaLG Electronics S.A. (Pty)

Ltd.(LGESA)100.0% - 100.0% - December


electronic products

More than half of

voting rights

TurkeyLG Electronics Ticaret

A.S.(LGETK)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

Saudi ArabiaLG-Shaker Co.,

Ltd.(LGESR)51.0% 49.0% 49.0% 51.0% December

Production of electronic

products

More than half of

voting rights

KenyaLG Electronics Service

Kenya Limited(LGESK)100.0% - 100.0% - December Services

More than half of

voting rights

Saudi ArabiaLG Electronics Saudi Arabia

Limited100.0% - 100.0% - December Services

More than half of

voting rights

UAE Hi Logistics Middle East FZE 100.0% - 100.0% - December Services of logisticsMore than half of

voting rights

Egypt Hi Logistics Egypt 100.0% - - - December Services of logisticsMore than half of

voting rights

Other Russia LG Alina Electronics(LGERI) 95.0% 5.0% 95.0% 5.0% December ServicesMore than half of

voting rights

RussiaHI LOGISTICS RUS Limited

Liability Company100.0% - - - December Services of logistics

More than half of

voting rights

KazakhstanLG Electronics Almaty

Kazakhstan(LGEAK)100.0% - 100.0% - December


electronic products

More than half of

voting rights

RussiaLG Electronics RUS,

LLC(LGERA)100.0% - 100.0% - December


electronic products

More than half of

voting rights

UkraineLG Electronics Ukraine

Inc.(LGEUR)100.0% - 100.0% - December

Sales of

electronic products

More than half of

voting rights

1 Although the Parent Company holds less than half of the voting rights of LG Innotek Co., Ltd. which is an intermediate parent of its subsidiaries, the Parent

Company is deemed to have control over LG Innotek Co., Ltd. when considering the size and dispersion of holdings of the other vote holders and the voting

patterns at previous shareholders’ meetings (Note 3).

2 Control exists as there is power over more than half of the voting rights by virtue of an agreement with other investors although the Parent Company holds less


20

than half of the voting power.

3 Although the Parent Company holds less than half of the voting rights, the Group is deemed to have control as the Parent Company has the substantial power

to direct the relevant activities and is exposed to variable returns.

4 In the preparation of consolidated financial statements, the financial statements for the nine-month period ended September 30, 2014, were used for those

subsidiaries with different fiscal year ends.

(b) Financial information of major subsidiaries as of September 30, 2014 and December 31, 2013, and for the three-month and nine-month periods ended

September 30, 2014 and 2013, is as follows (before elimination of intercompany transactions):

September 30, 2014 2014

Three months Nine months

(in millions of Korean won) Assets Liabilities Equity Sales Net Income (Loss) Sales Net Income (Loss)

LG Innotek Co., Ltd. 4,243,919 2,708,186 1,535,733 1,502,712 54,673 4,148,626 45,894

LG Electronics do Brasil Ltda.(LGEBR) 1,751,629 1,343,874 407,755 875,291 (566) 2,733,890 53,877

LG Electronics U.S.A., Inc.(LGEUS) 2,161,304 1,899,248 262,056 1,473,180 (14,895) 4,356,798 (5,567)

Zenith Electronics Corporation(Zenith) 1,010,582 39,520 971,062 34,241 4,483 108,558 15,197

LG Electronics European Shared Service Center B.V.(LGESC) 1,008,404 978,272 30,132 54,142 (592) 164,135 6,295

LG Electronics RUS, LLC(LGERA) 1,060,363 612,822 447,541 662,589 23,087 1,911,096 105,109

LG Electronics (China) Co. Ltd.(LGECH) 871,833 846,825 25,008 427,335 (184) 1,100,373 2,106

LG Electronics Tianjin Appliances Co., Ltd.(LGETA) 570,983 320,151 250,832 219,764 (2,652) 923,675 15,676

LG Electronics Mobilecomm U.S.A., Inc.(LGEMU) 1,092,488 1,013,683 78,805 1,778,862 (9,406) 4,086,148 3,075

LG Electronics India Pvt. Ltd.(LGEIL) 609,874 329,667 280,207 514,665 22,475 1,711,727 120,075

Inspur LG Digital Mobile Communications Co., Ltd.(LGEYT) 804,403 693,997 110,406 937,976 14,268 2,420,857 34,818

LG Electronics Mlawa Sp. z o.o(LGEMA) 628,929 336,706 292,223 365,327 6,552 1,023,502 17,032

LG Electronics Reynosa S.A. DE C.V.(LGERS) 653,205 398,874 254,331 655,019 11,323 1,732,644 17,847

P.T. LG Electronics Indonesia(LGEIN) 529,415 297,021 232,394 401,819 11,647 1,229,783 21,250

LG Electronics Nanjing Display Co., Ltd.(LGEND) 429,049 303,527 125,522 325,291 4,547 1,115,541 23,017

LG Electronics Wroclaw Sp.z.o.o(LGEWR) 463,563 296,209 167,354 324,945 3,375 1,150,834 12,346


21

September 30, 2014 2014



Hiplaza Co., Ltd. 474,451 335,194 139,257 385,613 (3,819) 1,120,263 (2,300)

LG Electronics Mexico S.A. DE C.V.(LGEMS) 565,935 479,732 86,203 394,643 7,924 1,203,623 16,559

Nanjing LG-Panda Appliances Co., Ltd.(LGEPN) 468,236 346,433 121,803 300,185 6,769 906,081 14,366

Taizhou LG Electronics Refrigeration Co., Ltd.(LGETR) 422,493 287,096 135,397 235,555 1,225 649,877 9,518

LG Electronics Monterrey Mexico S.A.de C.V.(LGEMM) 379,218 334,023 45,195 155,364 1,320 462,429 4,602

December 31, 2013 2013



LG Innotek Co., Ltd. 4,260,285 3,039,627 1,220,658 1,386,341 (8,009) 4,144,795 (15,588)

LG Electronics do Brasil Ltda.(LGEBR) 1,679,815 1,305,953 373,862 992,091 48,195 2,743,239 147,100

LG Electronics U.S.A., Inc.(LGEUS) 1,825,282 1,555,954 269,328 1,457,676 2,634 4,523,079 2,139

Zenith Electronics Corporation(Zenith) 995,877 35,986 959,891 45,616 7,662 117,019 29,050

LG Electronics European Shared Service Center B.V.(LGESC) 1,071,932 1,045,305 26,627 53,790 841 159,034 5,879

LG Electronics RUS, LLC(LGERA) 963,916 537,408 426,508 737,554 56,068 2,059,507 89,639

LG Electronics (China) Co. Ltd.(LGECH) 694,585 671,465 23,120 409,258 (6,715) 1,046,975 3,404

LG Electronics Tianjin Appliances Co., Ltd.(LGETA) 566,860 311,851 255,009 220,399 (4,730) 970,369 19,631

LG Electronics Mobilecomm U.S.A., Inc.(LGEMU) 581,012 504,592 76,420 924,372 (4,796) 2,860,049 (6,438)

LG Electronics India Pvt. Ltd.(LGEIL) 456,472 227,511 228,961 457,102 25,073 1,685,229 85,052

Inspur LG Digital Mobile Communications Co., Ltd.(LGEYT) 448,362 371,472 76,890 548,764 8,528 1,648,799 (14,073)

LG Electronics Mlawa Sp. z o.o(LGEMA) 540,236 236,240 303,996 266,120 1,879 917,611 17,701

LG Electronics Reynosa S.A. DE C.V.(LGERS) 392,973 154,526 238,447 552,081 (1,516) 1,539,361 (1,888)

P.T. LG Electronics Indonesia(LGEIN) 480,206 268,369 211,837 471,663 (8,123) 1,542,868 2,447

LG Electronics Nanjing Display Co., Ltd.(LGEND) 505,656 332,843 172,813 397,458 5,136 1,213,693 33,707


22

December 31, 2013 2013



LG Electronics Wroclaw Sp.z.o.o(LGEWR) 500,773 329,144 171,629 372,113 9,307 1,285,376 18,049

Hiplaza Co., Ltd. 434,154 292,415 141,739 402,053 (466) 1,122,579 3,622

LG Electronics Mexico S.A. DE C.V.(LGEMS) 409,158 336,857 72,301 322,509 15,906 1,087,053 6,041

Nanjing LG-Panda Appliances Co., Ltd.(LGEPN) 404,019 282,849 121,170 311,070 12,216 858,914 29,402

Taizhou LG Electronics Refrigeration Co., Ltd.(LGETR) 357,812 229,260 128,552 206,958 264 603,428 16,351

LG Electronics Monterrey Mexico S.A.de C.V.(LGEMM) 398,895 356,658 42,237 168,362 3,386 479,082 8,479


23

(c) Information of non-controlling interests of subsidiaries and subsidiaries with material non-

controlling interests

i) Subsidiaries held at less than 100% of interest

Subsidiaries LocationControlling

interest

Non-controlling

interest

LG Innotek Co., Ltd. and its subsidiaries1 Korea 40.8% 59.2%

LG Hitachi Water Solution Co., Ltd. Korea 51.0% 49.0%

LGE Alliance Fund Korea 96.2% 3.8%

LGE Alliance FundⅡ Korea 98.7% 1.3%

Innovation Investment Fund Korea 83.3% 16.7%

Inspur LG Digital Mobile Communications Co.,

Ltd.(LGEYT)China 70.0% 30.0%

LG Electronics (Hangzhou) Co., Ltd.(LGEHN) China 70.0% 30.0%

LG Electronics Huizhou Ltd.(LGEHZ) China 80.0% 20.0%

LG Electronics Nanjing Display Co.,

Ltd.(LGEND)China 70.0% 30.0%

LG Electronics Shenyang Inc.(LGESY) China 78.9% 21.1%

LG Electronics Tianjin Appliances Co.,

Ltd.(LGETA)China 80.0% 20.0%

NanJing LG-Panda Appliances Co.,

Ltd.(LGEPN)China 70.0% 30.0%

Qingdao LG Inspur Digital Communication Co.,

Ltd.(LGEQD)China 70.0% 30.0%

Shanghai LG Electronics Co., Ltd.(LGESH) China 70.0% 30.0%

Tianjin Lijie cartridge heater Co., Ltd.(LGETL) China 66.7% 33.3%

LG Electronics Pasig Inc. Philippines 38.0% 62.0%

LG Electronics Honduras S.de R.L. Honduras 20.0% 80.0%

LG Electronics Algeria SARL(LGEAS) Algeria 70.0% 30.0%

LG-Shaker Co., Ltd.(LGESR) Saudi Arabia 51.0% 49.0%

LG Alina Electronics(LGERI) Russia 95.0% 5.0%

P.T. LG Electronics Indonesia(LGEIN)2 Indonesia 100.0% 0.0%

PT.LG Electronics Service Indonesia(LGEID) Indonesia 99.8% 0.2%

1 Above location of LG Innotek Co., Ltd. and its subsidiaries represents the location of the head

office only.2 P.T.LG Electronics Indonesia’s shares held by the Parent Company are 51,916 out of the total

number of shares of 51,920.


24

ii) Non-controlling interest portion of subsidiaries’ financial position and financial performance

Accumulated non-controlling interest as of September 30, 2014 and December 31, 2013, is

as follows:


September 30,

2014December 31, 2013

LG Innotek Co., Ltd. and its subsidiaries 1,000,602 685,127

LG Electronics Nanjing Display Co.,

Ltd.(LGEND)36,894 50,643


Ltd.(LGETA)47,687 48,877

LG-Shaker Co., Ltd.(LGESR) 48,702 37,174


Ltd.(LGEPN)32,906 32,982

LG Electronics Shenyang Inc.(LGESY) 24,482 23,725


Ltd.(LGEYT)27,807 22,017

LG Electronics Huizhou Ltd.(LGEHZ) 15,842 17,690


Ltd.(LGEQD)15,482 13,195

LG Electronics (Hangzhou) Co., Ltd.(LGEHN) 9,082 8,011

Shanghai LG Electronics Co., Ltd.(LGESH) 5,191 8,016

LG Hitachi Water Solution Co., Ltd. 4,020 5,329

Innovation Investment Fund 1,212 1,914

LGE Alliance Fund 308 298

LG Alina Electronics(LGERI) 68 112

Tianjin Lijie cartridge heater Co., Ltd.(LGETL) 63 81

LGE Alliance FundⅡ 40 41

P.T. LG Electronics Indonesia(LGEIN) 18 16

LG Electronics Pasig Inc. (2,356) (2,358)

LG Electronics Algeria SARL(LGEAS) (2,797) (2,723)

PT.LG Electronics Service Indonesia(LGEID) - -

Total 1,265,253 950,167


25

Profit(loss) attributed to non-controlling interest for the three-month and nine-month periods

ended September 30, 2014 and 2013, is as follows:

2014 2013

(in millions of Korean won)Three

monthsNine

monthsThree

monthsNine

months

LG Innotek Co., Ltd. and its subsidiaries 34,733 66,653 13,729 13,701

LG Electronics Nanjing Display Co., Ltd.(LGEND) 1,734 7,084 1,452 8,938


Ltd.(LGETA) 797 2,827 (204) 4,579

LG-Shaker Co., Ltd.(LGESR) 2,327 13,276 910 10,012

NanJing LG-Panda Appliances Co., Ltd.(LGEPN) 3,050 4,040 3,107 6,747

LG Electronics Shenyang Inc.(LGESY) 550 1,305 1,846 5,188


Ltd.(LGEYT) 1,753 6,239 1,955 (3,948)

LG Electronics Huizhou Ltd.(LGEHZ) 502 1,298 1,418 2,196


Ltd.(LGEQD) 588 2,602 709 229

LG Electronics (Hangzhou) Co., Ltd.(LGEHN) 263 1,489 49 282

Shanghai LG Electronics Co., Ltd.(LGESH) (2,069) (1,808) 818 1,043

LG Hitachi Water Solution Co., Ltd. (569) (1,309) (513) (1,360)

Innovation Investment Fund 3 (18) 22 (55)

LGE Alliance Fund 1 9 (2) (2)

LG Alina Electronics(LGERI) (27) (26) (5) 6

Tianjin Lijie cartridge heater Co., Ltd.(LGETL) 4 (16) 34 (42)

LGE Alliance FundⅡ 1 1 - -

P.T. LG Electronics Indonesia(LGEIN) 1 2 - -

LG Electronics Pasig Inc. (2) (21) (3) (14)

LG Electronics Algeria SARL(LGEAS) (675) (262) (769) (1,545)

PT.LG Electronics Service Indonesia(LGEID) - - - -

Total 42,965 103,365 24,553 45,955


26

Dividends paid to non-controlling interest for the nine-month periods ended September 30,

2014 and 2013, are as follows:

(in millions of Korean won) 2014 2013LG Electronics Nanjing Display Co.,

Ltd.(LGEND) 18,923 890


Ltd.(LGETA) 2,787 5,088


Ltd.(LGEPN) 3,221 2,262

LG Electronics Huizhou Ltd.(LGEHZ) 2,591 3,397

LG Electronics (Hangzhou) Co., Ltd.(LGEHN) 246 380

Shanghai LG Electronics Co., Ltd.(LGESH) 787 557

LG Alina Electronics(LGERI) - 634

Total 28,555 13,208

iii) Summarized consolidated statements of financial position of subsidiaries with material non-

controlling interests, is as follows (before elimination of intercompany transactions):

- LG Innotek Co., Ltd. and its subsidiaries

(in millions of Korean won) September 30, 2014 December 31, 2013

Current assets 2,248,493 2,006,841

Non-current assets 2,374,010 2,574,430

Total assets 4,622,503 4,581,271

Current liabilities 1,705,072 1,629,364

Non-current liabilities 1,220,412 1,635,007

Total liabilities 2,925,484 3,264,371

Equity attributable to owners of LG Innotek

Co., Ltd. 1,697,017 1,316,898

Non-controlling interests 2 2

Total equity 1,697,019 1,316,900


27

iv) Summarized consolidated statements of comprehensive income of subsidiaries with

material non-controlling interests for the three-month and nine-month periods ended

September 30, 2014 and 2013, is as follows (before elimination of intercompany

transactions):


2014 2013

(in millions of Korean won)Three

monthsNine

monthsThree

monthsNine

months

Net sales 1,649,296 4,651,074 1,595,508 4,667,557


Other comprehensive income(loss),

net of tax 7,586 (17,590) (18,036) 4,924

Total comprehensive income, net of tax 65,940 100,775 9,699 33,050

v) Summarized consolidated statements of cash flows of subsidiaries with material non-

controlling interests for the nine-month periods ended September 30, 2014 and 2013, is as

follows (before elimination of intercompany transactions):


(in millions of Korean won) 2014 2013

Cash flows from operating activities 593,109 263,634

Cash flows from investing activities (221,509) (364,900)

Cash flows from financing activities (263,575) 207,861

Exchange gains on cash and cash equivalents 1,198 263

Net increase in cash and cash equivalents 109,223 106,858

Cash and cash equivalents at the beginning of period 399,610 352,808

Cash and cash equivalents at the end of period 508,833 459,666

(d) Significant restrictions on its subsidiaries

i) The significant restrictions on the use of assets and on settlement of liabilities by the Group

are as follows:

Cash and cash equivalents and other deposits with financial institutions held by subsidiaries in

Egypt, Algeria, Russia, Kazakhstan and Uzbekistan are subject to currency regulations of each

relevant country. Accordingly, there are transfer limits on their cash and short-term financial

instruments from these countries.


28

ii) The nature and limitation of the protective rights of non-controlling interest which may

restrict use of assets and settlement of liabilities by the Group are as follows:

SubsidiariesThe nature and limitation of the protective rights for non-

controlling interest

LG Hitachi Water Solution

Co., Ltd.

For the following special resolutions of the board of directors,

consents from directors who were appointed by non-controlling

interest holder are required.

- Acquisitions and disposals of assets over￦1,000 million not

included in the business plan

- Borrowings and issues of debentures over ￦1,000 million

not included in the business plan

- Expenditures over ￦1,000 million not included in the

business plan

- Initial agreement, amendment and termination of significant

contracts over￦1,000 million

LG-Shaker Co., Ltd.(LGESR) Unanimous approval is required for the confirmation of financial

statements and dividend declaration.

(e) Changes in the Parent Company’s interest in the subsidiaries

Changes in the Parent Company’s interest in the subsidiaries without loss of control for the

nine-month periods ended September 30, 2014 and 2013, are as follows:


LG Innotek Co., Ltd. and its subsidiaries1

Decrease in the Parent Company’s interest byexercise of conversion rights (A) 20,180 -

Consideration received from non-controllinginterest (B) - -

Changes of the Parent Company’s ownershipinterest (A+B) 20,180 -

LG-Shaker Co., Ltd.(LGESR)Increase in the Parent Company’s interest by

exercise of stock option (A) 1,813 -

Consideration paid to non-controlling interest (B) 1,013 -Changes of the Parent Company’s ownership

interest (A-B) 800 -

1 The controlling interest of the parent company changed due to the conversion of the convertible bonds that

were issued by LG Innotek Co., Ltd, a subsidiary (Note 11).


29

(f) Subsidiary newly included in scope of preparation of consolidated financial statements for the

nine-month period ended September 30, 2014, is:

Subsidiary Reason CountryPercentage of

ownershipClosingMonth

MajorBusiness

HI LOGISTICS RUS Limited

Liability Company

Newly

established Russia 100% December Logistics

PT.LG Electronics Service

Indonesia(LGEID)

Newly

established Indonesia 99.8% December Service

Hi Logistics Egypt

Newly

established Egypt 100.0% December Logistics

Hi Logistics Vietnam Co.,

LTD.

Newly

established Vietnam 100.0% December Logistics

(g) Subsidiary excluded from the scope of preparation of consolidated financial statements for the

nine-month period ended September 30, 2014, is:

Subsidiary Reason Country

LG Receivable Funding LLC Liquidation USA

(h) Gain or loss resulted from loss of control over subsidiaries

During the period, no gain or loss occurred due to the loss of control over LG ReceivableFunding LLC which was a former subsidiary of the Group.

2. Significant Accounting Policies

Basis of Preparation

The interim consolidated financial statements for the nine-month period ended September 30, 2014,

have been prepared in accordance with Korean IFRS 1034, ‘Interim Financial Reporting’. These

interim consolidated financial statements have been prepared in accordance with the Korean IFRS

standards and interpretations effective at September 30, 2014.

Changes in Accounting Policy and Disclosures

i. New and amended standards and interpretations effective for the financial year beginning

January 1, 2014.

The new and amended standards early adopted by the Group from the financial year, 2013

- Korean IFRS 1032(Amendment),’ Financial Instruments: Presentation’

Amendment to Korean IFRS 1032 provides that the right to offset must not be contingent on a

future event and must be legally enforceable in all of circumstances; and if an entity can settle

amounts in a manner such that outcome is, in effect, equivalent to net settlement, the entity will meet

the net settlement criterion. The amendments of Korean IFRS 1032 do not have a significant impact

on these consolidated financial statements.

The new and amended standards, and interpretations adopted by the Group during 2014


30

- Korean IFRS 1036(Amendment): ‘Impairment of Assets’

Amendments to Korean IFRS 1036, ‘Impairment of Assets’, clarify the facts that it shall disclose the

recoverable amount of an individual asset (including goodwill) or a cash-generating unit for which

an impairment loss is recognized or reversed. These amendments also prescribe disclosures in

case the recoverable amount of an individual asset (including goodwill) or a cash-generating unit

for which an impairment loss is recognized or reversed is the fair value less costs to sell. The

amendments do not have a significant impact on these consolidated financial statements.

- Korean IFRS 1039(Amendment): ‘Financial Instruments: Recognition and Measurement’

Amendments to Korean IFRS 1039, ‘Financial Instruments: Recognition and Measurement’, allows

the continuation of hedge accounting for a derivative that has been designated as a hedging

instrument in a circumstance in which that derivative is novated to a central counterparty (CCP) as

a consequence of laws or regulations. The amendments do not have a significant impact on these

consolidated financial statements.

- Korean IFRS 2121(Enactment): ‘Levies’

Korean IFRS 2121, ‘Levies’, are applied to a liability to pay a levy imposed by a government in

accordance with the legislation. The interpretation requires that the liability to pay a levy is

recognized when the activity that triggers the payment of the levy occurs, as identified by the

legislation. The enactments do not have a significant impact on these consolidated financial

statements.

ii. New and amended standards and interpretations effective for the financial year beginning

January 1, 2015.

There are no new and amended standards early adopted by the Group from the financial year, 2014.

New and amended standards and interpretations not yet adopted by the Group are as follows:

- Korean IFRS 1019(Amendment): ‘Employee Benefits’

In defined benefit plans with contributions from employees or third parties, if such contributions are

linked to service provided by employees or third parties at the same period when contributions were

made, a practical expedient of reducing such contributions from the service cost is allowed. It was

clarified that when contributions reflect the actuarial valuation method, such contributions made by

employees or third parties should be attributed by the same method used to attribute the total benefit.

The amendments do not have a significant impact on these consolidated financial statements.

- Annual improvements of Korean IFRS

Korean IFRS 1102, ‘Share-based Payment’

Korean IFRS 1103, ‘Business Combination’

Korean IFRS 1108, ‘Operating Segment’


31

Korean IFRS 1113, ‘Fair Value Measurement’

Korean IFRS 1016, ‘Property, Plant and Equipment’

Korean IFRS 1038, ‘Intangible Assets’

Korean IFRS 1024, ‘Related Party Disclosures’

Korean IFRS 1040, ‘Investment Property’

The annual improvements of Korean IFRS do not have a significant impact on these consolidated

financial statements.

Application of Accounting Policies

The significant accounting policies and computation method used in the preparation of these interim

consolidated financial statements are the same as the policies and methods adopted for the

preparation of the financial statements for the year ended December 31, 2013, unless otherwise

stated in Note 2.

Income Tax Expense

Income tax expense for the interim period is recognized based on management’s best estimate of

the weighted average annual income tax rate expected for the full financial year. The estimated

average annual tax rate is applied to the pre-tax income for the period.


32

3. Critical Accounting Estimates and Assumptions

For the interim consolidated financial statements, the Group's management makes judgments,

estimates and assumptions which affect accounting policies and its assets, liabilities, income and

cost. Estimates and assumptions are continually evaluated and are based on historical experience

and other factors, including expectations of future events that are believed to be reasonable under

the circumstances. The resulting accounting estimates will, by definition, seldom equal the related

actual results.

(a) Revenue Recognition

The Group recognizes revenue using the percentage of completion method for the rendering of

service such as installation. When using the percentage of completion method, revenue shall be

recognized in accordance with the progress of the transaction. It is calculated based on potential

economic benefits and the estimated cost for the completion of the transaction. The factors for the

estimation of revenue may vary.

(b) Impairment of Goodwill

The Group tests goodwill regularly for impairment. The recoverable amounts of cash-generating

units have been determined based on fair value after deducting the costs of disposal and value-in-

use calculations. These calculations require the use of estimates.

(c) Income Taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in

determining the worldwide provision for income taxes. There are many transactions and calculations

for which the ultimate tax determination is uncertain. The Group recognizes assets and liabilities for

anticipated tax audit issues based on the best estimates of whether additional taxes will be due.

Income tax expense in each interim period is recognized based on the best estimate of the weighted

average annual income tax rate expected for the full financial year as explained in Note 2. Where

final tax obligation is different from the amount that was initially recorded, such differences will

impact the current and deferred income tax assets and liabilities in the period when tax obligation is

finalized.

(d) Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using

valuation techniques. The Group uses its judgement to select a variety of methods and makes

assumptions that are mainly based on market conditions existing at the end of each reporting period.


33

(e) Provisions

The Group recognizes provisions for product warranties and sales returns based on their historical

data.

(f) Net Defined Benefit Liability

The present value of the defined benefit obligation depends on various factors that are determined

on an actuarial basis using a number of assumptions. The assumptions used in determining the net

cost(income) for pensions include the discount rate. Any changes in these assumptions will impact

the carrying amount of the defined benefit obligation. The Group determines the appropriate

discount rate at the end of each year. This is the interest rate that is used to determine the present

value of estimated future cash outflows expected to be required to settle the defined benefit

obligation. In determining the appropriate discount rate, the Group considers the interest rates of

high-quality corporate bonds that are denominated in the currency in which the benefits will be paid,

and that have terms to maturity approximating the terms of the related pension liability. Other key

assumptions for defined benefit obligation are based on current market conditions.

Significant Judgment on Accounting Policies Adopted by the Group

In order to determine the Group’s de-facto control, the Group considers the size of the Group’s

holding of voting rights relative to the size and dispersion of holdings of the other vote holders and

additional facts and circumstances including voting patterns at previous shareholders’ meetings.

4. Segment Information

The segments of the Group are strategic business divisions providing different products and services.

Each business division operates separately according to unique technologies and marketing

strategies. The main products of each business division are as follows and the comparative

information is presented in conformity with the same classification in the current period.

Divisions Products

Home Entertainment (HE)TV, Monitors, PCs, Security devices, Audio, Videoand others

Mobile Communications (MC) Mobile communications

Home Appliance (HA)Refrigerators, Washing machines, Microwaves,Vacuum cleaners, Water purifier and others

Air Conditioning & Energy Solution (AE)Residential air conditioners, Commercial airconditioners and others

LG Innotek Co.,Ltd. and its subsidiaries(Innotek)

LED, Display & Network, Substrate & Material,Optics solution, Auto & Motor and others

Other segments Vehicle components, Compressor, Motor, Displaymaterial, Lighting, Solar and others

(a) The segment information for sales and operating income(losses) for the three-month and nine-


34

month periods ended September 30, 2014 and 2013, is as follows:

Three-month period ended September 30, 2014

(in millions of Korean won) HE MC HA AE InnotekOther

segments1Inter-segmenttransactions2 Total

Sales 4,710,363 4,247,030 2,911,487 925,559 1,649,296 1,208,058 (735,427) 14,916,366

External sales 4,707,444 4,247,000 2,909,833 924,491 1,247,454 880,144 - 14,916,366

Internal sales 2,919 30 1,654 1,068 401,842 327,914 (735,427) -Operating

income(loss)3 130,536 167,394 51,782 (2,467) 102,937 11,089 - 461,271

Depreciationand amortization 105,538 82,631 70,482 23,925 120,401 71,380 - 474,357

Nine-month period ended September 30, 2014



Sales 14,748,552 11,274,383 8,659,845 3,780,700 4,651,074 3,721,825 (2,270,727) 44,565,652

External sales 14,744,247 11,263,316 8,655,910 3,774,558 3,531,607 2,596,014 - 44,565,652

Internal sales 4,305 11,067 3,935 6,142 1,119,467 1,125,811 (2,270,727) -

Operating income3525,416 244,442 258,822 251,486 255,950 35,368 - 1,571,484

Depreciationand amortization 329,487 246,162 219,098 72,115 358,618 203,336 - 1,428,816

Three-month period ended September 30, 2013



Sales 4,852,096 3,045,359 2,966,781 973,204 1,595,508 1,118,513 (659,309) 13,892,152

External sales 4,851,097 3,045,349 2,966,599 972,106 1,260,442 796,559 - 13,892,152

Internal sales 999 10 182 1,098 335,066 321,954 (659,309) -Operating

income(loss)3 123,957 (79,670) 108,748 19,506 55,748 (10,494) - 217,795

Depreciationand amortization 126,469 72,829 78,838 23,098 136,479 61,217 - 498,930

Nine-month period ended September 30, 2013



Sales 14,787,253 9,370,782 8,959,889 3,923,222 4,667,557 3,612,741 (2,096,377) 43,225,067

External sales 14,781,014 9,370,746 8,956,951 3,920,843 3,640,650 2,554,863 - 43,225,067

Internal sales 6,239 36 2,938 2,379 1,026,907 1,057,878 (2,096,377) -Operating

income(loss)3 228,827 114,003 332,016 272,193 107,256 (7,734) - 1,046,561

Depreciationand amortization 356,218 211,090 229,166 66,137 383,184 171,127 - 1,416,922

1 Other segments include operating segments not qualifying as reportable segments, supporting and R&D

divisions.2 Accounting of sales between segments are treated at arm’s length.3 Non-operating income (losses) are not separately disclosed as the Chief Operating Decision Maker does not

review them by segments.


35

(b) The segment information for assets and liabilities as of September 30, 2014 and December 31,

2013, is as follows:



Segment

assets

Segment

liabilities

Segment

assets

Segment

liabilities

HE 14,051,463 12,841,647 13,255,416 11,834,863

MC 8,445,741 6,317,962 7,352,268 5,267,930

HA 8,116,355 6,031,868 7,664,596 5,538,440

AE 3,175,818 1,824,502 3,040,696 1,807,856

Innotek 4,622,503 2,925,484 4,581,271 3,264,371

Sub-total1 38,411,880 29,941,463 35,894,247 27,713,460Other segments and inter-

segment transactions 91,584 (4,693,590) (366,183) (4,874,765)

Total 38,503,464 25,247,873 35,528,064 22,838,695

1 The amounts of assets and liabilities of each segment are before inter-segment elimination, and common

assets and liabilities are allocated based on the operations of the segments.

(c) External sales by geographic areas for the three-month and nine-month periods ended

September 30, 2014 and 2013, and non-current assets by geographic areas are as follows:

(in millions of Korean won) External sales Non-current assets2

2014 2013

Geographic areas1Three

monthsNine

monthsThree

monthsNine

monthsSeptember

30, 2014December 31,

2013

Korea 3,657,108 11,399,096 3,548,218 11,115,774 9,244,509 9,291,312

China 943,236 2,751,194 973,064 2,835,296 857,260 889,248

Asia 1,414,786 4,462,245 1,340,655 4,528,712 526,282 391,792

Europe 1,484,849 4,707,248 1,358,390 4,594,577 258,361 276,573

North America 4,025,221 10,660,631 3,078,311 9,512,423 348,160 354,987

South America 1,446,347 4,524,310 1,599,382 4,579,878 241,440 222,484

Middle Asia & Africa 1,145,286 3,704,654 1,079,740 3,491,455 149,918 93,241

Others 799,533 2,356,274 914,392 2,566,952 190,564 190,969

Total 14,916,366 44,565,652 13,892,152 43,225,067 11,816,494 11,710,606

1 The comparative segment information by geographic areas is presented based on the current classification

at the end of reporting period.

2 Non-current assets consist of property, plant and equipment, intangible assets and investment property.

(d) There is no external customer contributing to more than 10% of total sales for the nine-month

periods ended September 30, 2014 and 2013.


36

5. Financial Instruments by Category

(a) Categorizations of financial instruments as of September 30, 2014 and December 31, 2013,

are as follows:

September 30, 2014


Assets at fairvalue throughprofit or loss

Loans andreceivables

Assetsclassified

asavailable-for-sale

Held-to-maturityfinancialassets Other Total

Cash and cash equivalents - 2,949,709 - - - 2,949,709

Financial deposits - 149,341 - - - 149,341

Trade receivables - 8,277,702 - - - 8,277,702

Loans and other receivables - 1,109,606 - - - 1,109,606

Other financial assets 3,008 - 50,659 2,692 10,484 66,843

Total 3,008 12,486,358 50,659 2,692 10,484 12,553,201

September 30, 2014


Liabilities atfair value through

profit or loss

Liabilitiescarried at

amortized cost Other Total

Trade payables - 7,404,914 - 7,404,914

Borrowings - 9,429,679 - 9,429,679

Other payables - 2,466,015 - 2,466,015

Other financial liabilities 917 - 65,084 66,001

Total 917 19,300,608 65,084 19,366,609

December 31, 2013




Assetsclassified

asavailable-for-sale


Cash and cash equivalents - 2,645,270 - - - 2,645,270

Financial deposits - 164,888 - - - 164,888

Trade receivables - 7,117,402 - - - 7,117,402

Loans and other receivables - 1,198,483 - - - 1,198,483

Other financial assets 16,080 - 53,075 2,576 1,413 73,144

Total 16,080 11,126,043 53,075 2,576 1,413 11,199,187


37

December 31, 2013



profit or loss



Trade payables - 5,691,114 - 5,691,114

Borrowings - 9,211,029 - 9,211,029

Other payables - 2,857,356 - 2,857,356

Other financial liabilities 1,457 - 20,096 21,553

Total 1,457 17,759,499 20,096 17,781,052

(b) Income and expenses by category of financial instruments for the nine-month periods ended

September 30, 2014 and 2013, are as follows:

2014




Assetsclassified asavailable-for-

sale


Interest income - 69,560 195 54 - 69,809

Exchange differences - (119,518) - - - (119,518)

Bad debt expense - (25,765) - - - (25,765)

Loss on disposal of trade

receivables- (13,962) - - - (13,962)

Loss on valuation of available-

for-sale financial assets, net

of tax (through other

comprehensive loss)

- - (1,216) - - (1,216)

Gain on disposal of available-

for-sale financial assets- - 1,509 - - 1,509

Impairment loss of available-for-

sale financial assets- - (1,114) - - (1,114)

Dividend income - - 322 - - 322

Gain on derivatives (through

profit or loss)27,378 - - - - 27,378

Loss on derivatives, net of tax

(through other comprehensive

loss)- - - - (43) (43)

2014



profit or loss



Interest expenses - (342,588) - (342,588)

Exchange differences - (102,385) - (102,385)

Loss on derivatives (through profit or loss) (36,539) - - (36,539)

Loss on derivatives, net of tax (through

other comprehensive loss)- - (25,808) (25,808)


38

2013




Assetsclassified asavailable-for-

sale


Interest income - 66,458 - 93 - 66,551

Exchange differences - (166,651) - - - (166,651)

Bad debt expense - (13,864) - - - (13,864)

Loss on disposal of trade

receivables- (14,860) - - - (14,860)

Gain on valuation of available-

for-sale financial assets, net

of tax (through other

comprehensive loss)

- - 2,773 - - 2,773

Gain on disposal of available-

for-sale financial assets- - 7,540 - - 7,540

Impairment loss of available-for-

sale financial assets- - (2,498) - - (2,498)

Dividend income - - 327 - - 327

Gain on derivatives (through

profit or loss)20,482 - - - - 20,482

2013



profit or loss



Interest expenses - (305,287) - (305,287)

Exchange differences - (92,103) - (92,103)

Loss on derivatives (through profit or loss) (11,749) - - (11,749)

Gain on derivatives , net of tax (through

other comprehensive income)- - 7,404 7,404

(c) Recognized financial instruments that are subject to an enforceable master netting

arrangements or similar arrangements, are as follows:


(in millions of Korean won) Trade receivables Trade payables Trade receivables Trade payables

Gross amounts subject to arrangement 281,388 464,051 268,264 485,690

Offset (268,912) (268,912) (247,931) (247,931)

Net amounts presented 12,476 195,139 20,333 237,759

Related amounts not offset - - - -

Net amount 12,476 195,139 20,333 237,759


39

6. Trade Receivables

(a) Carrying amounts of trade receivables, and allowance for doubtful accounts, as of September

30, 2014 and December 31, 2013, are as follows:


Trade receivables 8,410,081 7,231,763

Less: allowance for doubtful accounts (132,379) (114,361)

Carrying amount 8,277,702 7,117,402

(b) The aging analysis as of September 30, 2014 and December 31, 2013, is as follows:


Current 7,662,200 6,560,428

Past due : Up to 6 months 540,791 501,327

Past due : 7 to 12 months 62,232 40,113

Past due : Over one year 51,996 19,761

Defaulted 92,862 110,134

Total 8,410,081 7,231,763

(c) Movements in allowance for doubtful accounts for the nine-month periods ended September

30, 2014 and 2013, are as follows


At January 1 114,361 138,418

Addition 26,175 12,174

Write-off (2,918) (12,313)

Other (5,239) 2,752

At September 30 132,379 141,031


40

(d) Transferred financial assets that are not derecognized in their entirety are as follows:

As of September 30, 2014, there are no trade receivables which are transferred to financial

institutions but recorded as short-term borrowings as the transfer did not qualify for

derecognition.



Discounted

receivables

Securitized

receivables

Discounted

receivables

Securitized

receivables

Carrying amount of asset1

Trade receivables - - 26,322 527,574

Carrying amount of

associated liability1

Short-term borrowings - - 26,322 -

Net position2 - - - 527,574

1 Fair values of the above trade receivables and short-term borrowings are the same as their carrying amounts,

respectively.2 Net position is the difference of fair value between the above transferred financial asset and the associated

liability.

7. Other Financial Assets and Liabilities

(a) Details of other financial assets and liabilities are as follows:


Other financial assets

Derivatives 13,492 17,493

Available-for-sale 50,659 53,075

Held-to-maturity 2,692 2,576

Total 66,843 73,144

Current 13,541 17,430

Non-current 53,302 55,714


Other financial liabilities

Derivatives 65,454 20,928

Financial guarantees 547 625

Total 66,001 21,553

Current 2,753 10,890

Non-current 63,248 10,663


41

(b) Details of derivatives as of September 30, 2014 and December 31, 2013, are as follows:



Assets Liabilities Assets Liabilities

Current

Currency Forward 3,008 917 1,116 580

Currency Swap 10,484 1,730 16,283 10,204

Sub-total 13,492 2,647 17,399 10,784

Non- current

Currency Swap - 37,065 94 10,144

Interest Rate Swap - 25,742 - -

Sub-total - 62,807 94 10,144

Total 13,492 65,454 17,493 20,928

The maximum exposure to credit risk as of the reporting date is the fair value of derivatives as

of the same date.

The details of major derivative contracts as of the reporting date are presented in Note 31.

(c) Financial assets classified as available-for-sale

i) Changes in carrying amounts of available-for-sale financial assets for the nine-month

periods ended September 30, 2014 and 2013, are as follows:

2014


Beginning

Balance Acquisitions Disposals

Valuation1(Other

Comprehensive loss) Impairment Others

Ending

Balance

Listed equity securities 17,720 - (1,000) (1,427) (17) - 15,276

Unlisted equity securities 33,515 1,907 (765) - (797) (8) 33,852

Debt securities 1,840 - (191) 13 (300) 169 1,531

Total 53,075 1,907 (1,956) (1,414) (1,114) 161 50,659

2013


Beginning

Balance Acquisitions Disposals

Valuation1(Other

Comprehensive Income) Impairment Others

Ending

Balance

Listed equity securities 8,169 - (532) 4,223 - - 11,860

Unlisted equity securities 43,760 6,888 (10,006) - (2,498) - 38,144

Debt securities 2,670 1,205 (835) - - - 3,040

Total 54,599 8,093 (11,373) 4,223 (2,498) - 53,044

1 The profit of\824 million (2013:\422 million) and the loss of\317 million (2013: nil) from the accumulated

other comprehensive income relating to available-for-sale financial assets have been reclassified to profit

and loss during the nine-month period ended September 30, 2014.


42

ii) The listed equity securities among the above available-for-sale equity securities are

measured using quoted prices in active markets. However, the unlisted equity securities

are measured at cost as they are mostly in the beginning of their business stages and their

fair values cannot be reliably measured.

iii) The unlisted equity securities amounting to \765 million (2013: \4,345 million), whose

fair value could not be measured reliably and therefore measured at cost, have been

derecognized as a result of a transfer. Accordingly, a gain and loss on disposal amounting

to\687 million and\2 million, respectively, (2013: gain on disposal amounting to\7,118

million) was recognized as profit and loss for the nine-month period ended September 30,

2014. In addition, among available-for-sale equity securities derecognized during the nine-

month period ended September 30, 2013, amounting to \10,006 million, the amount of

\5,661 million has been derecognized as a result of a return of capital investments. The

Group did not recognize profit or loss in regard to the derecognition.

iv) During the nine-month period ended September 30, 2014, the listed equity securities

amounting to \17 million (2013: nil), the unlisted equity securities amounting to \797

million (2013: \2,498 million), and debt securities amounting to \300 million (2013: nil)

have been impaired.

(d) Held-to-maturity financial assets consist of:


Maturity

Within 1 year 49 31

1 to 5 year 2,643 2,545

During the nine-month period ended September 30, 2014, the amount recognized as interest

income in relation to held-to-maturity financial assets is ￦54 million (2013: ￦93 million). No

impairment losses were recognized in relation to held-to-maturity financial assets for the nine-month

periods ended September 30, 2014 and 2013.


43

8. Inventories

Inventories as of September 30, 2014 and December 31, 2013, consist of:


(in millions of Korean won)Acquisition

costValuationallowance

Carryingamount

Acquisitioncost

Valuationallowance

Carryingamount

Finished products and

merchandise 3,666,616 (83,269) 3,583,347 2,895,532 (75,473) 2,820,059

Half-finished products and

work-in-process 430,151 (6,895) 423,256 329,230 (8,876) 320,354

Raw materials and supplies 2,039,747 (24,342) 2,015,405 1,457,023 (27,103) 1,429,920

Other 303,380 (37,309) 266,071 310,415 (41,918) 268,497

Total 6,439,894 (151,815) 6,288,079 4,992,200 (153,370) 4,838,830

The loss on valuation of inventories recognized for the nine-month period ended September 30,

2014, amounts to￦93,522 million (2013:￦110,592 million).

9. Property, Plant and Equipment and Intangible Assets

Changes in property, plant and equipment for the nine-month periods ended September 30, 2014

and 2013, are as follows:


At January 1 10,341,993 9,889,204

Acquisitions 1,517,296 1,590,972

Transfer-in(out) (507) 4,268

Disposals and others (81,470) (46,503)

Decrease due to business transfer - (15,483)

Depreciation (1,155,025) (1,154,369)

Impairment1 (19,297) (5,215)

Changes in scope of consolidation - 6,044

Exchange differences (98,894) (47,694)

At September 30 10,504,096 10,221,224

1Recognized by measuring the recoverable amount of individual assets due to various reasons, including

disuse.

Changes in intangible assets for the nine-month periods ended September 30, 2014 and 2013, are

as follows:


At January 1 1,363,690 1,222,302

Acquisitions 73,338 107,066

Acquisitions by internal development 160,610 172,976

Transfer-in 67,937 72,896


44


Disposals and others (19,447) (14,448)

Decrease due to business transfer - (731)

Amortization (323,643) (277,605)

Impairment1 (11,570) (4,044)

Changes in scope of consolidation - 5,934

Exchange differences (1,486) (464)

At September 30 1,309,429 1,283,882

1Recognized by measuring the recoverable amount of individual assets due to various reasons, including

disuse.

10. Investments in Associates and Joint Ventures

(a) Investments in associates and joint ventures

i) Carrying amounts of investments in associates and joint ventures, as of September 30,

2014 and December 31, 2013, are as follows:


Associates 4,271,173 4,149,345

Joint ventures 179,522 180,238

Total 4,450,695 4,329,583

ii) Investments in associates as of September 30, 2014 and December 31, 2013, are as

follows:



costNet assetamount

Unrealizedgain

Carryingamount

Acquisitioncost

Net assetamount

Unrealizedgain

Carryingamount

LG Display Co., Ltd. 679,218 4,194,481 (55,451) 4,139,030 679,218 4,022,016 (46,916) 3,975,100

Ericsson-LG Co., Ltd 26,629 78,666 (74) 78,592 26,629 89,445 (107) 89,338Hitachi-LG Data StorageInc.(HLDS) 51,184 (2,371) (1,120) - 51,184 29,930 (1,921) 28,009

Global OLED TechnologyLLC. 53,454 28,050 - 28,050 53,454 30,767 - 30,767

Korea InformationCertificate Authority Inc. 852 3,141 - 3,141 852 2,890 - 2,890

LG Fuel Cell Systems Inc. 44,051 19,133 - 19,133 36,785 20,102 - 20,102

SKT Vietnam PTE., Ltd.1 72,194 717 - - 72,194 739 - -

One-Red, LLC2 3,128 3,227 - 3,227 3,128 3,139 - 3,139

Total 930,710 4,325,044 (56,645) 4,271,173 923,444 4,199,028 (48,944) 4,149,345

1 The use of the equity method is discontinued as impairment losses were recognized in full during 2009.

2 The financial statements as of August 31, 2013 were used due to a different closing date.


45

iii) Investments in joint ventures as of September 30, 2014 and December 31, 2013, are as

follows:



costNet assetamount

Unrealizedgain

Carryingamount

Acquisitioncost

Net assetamount

Unrealizedgain

Carryingamount

LG Holdings(HK) Ltd. 115,234 120,025 - 120,025 115,234 117,709 - 117,709

Arcelic-LG Klima Sanayi ve

Ticarta A.S.(LGEAT)14,718 45,792 (618) 45,174 14,718 48,521 (977) 47,544

EIC PROPERTIES PTE LTD. 9,636 13,764 - 13,764 9,636 13,693 - 13,693

LG Fund for Enterprises1 - - - - 2,282 1,292 - 1,292

LG-MRI LLC 516 559 - 559 - - - -

Total 140,104 180,140 (618) 179,522 141,870 181,215 (977) 180,238

1 Liquidated during the nine-month period ended September 30, 2014

(b) Associates and joint ventures

i) Associates as of September 30, 2014, are as follows:

LocationClosingMonth

Percentage ofownership

Nature of relationshipswith the Group

LG Display Co., Ltd. Korea December 37.9%Production and supply of

display products

Ericsson-LG Co., Ltd Korea December 25.0%

Supply of communication

devices and network

solution products

Hitachi-LG Data Storage

Inc.(HLDS)Japan December 49.0%

Production and supply of

data storages

Global OLED Technology

LLC.USA December 32.7%

OLED related patent

licensing

Korea Information

Certificate Authority Inc.1Korea December 7.5% Certificate services

LG Fuel Cell Systems Inc. USA December 29.2% R&D of fuel cell

SKT Vietnam PTE., Ltd. Singapore December 25.4% Communication services

One-Red, LLC USA March 25.0% DVD related patent licensing

1 Classified as an associate although the percentage of ownership is less than 20% because the Group can

exercise its voting rights through the Board of Directors.

ii) Joint ventures as of September 30, 2014, are as follows:

All joint arrangements, over which the Group has joint control, are structured through separate

companies and are categorized as joint ventures as the parties with joint control are assumed

to have rights to the net assets of the arrangement.


46

(in millions of Korean won)Location

Closingmonth

Percentage ofownership

Nature of relationshipswith the Group

LG Holdings(HK) Ltd. China December 49.0% Real estate

Arcelic-LG Klima Sanayi ve

Ticarta A.S.(LGEAT)Turkey December 50.0%

Production and supply of air

conditioning products

EIC PROPERTIES PTE

LTD.Singapore December 38.2% Real estate

LG-MRI LLC USA December 50.0%Production and supply of

digital display products

iii) All associates and joint ventures are accounted for using the equity method.

(c) Changes in the carrying amounts of investments in associates and joint ventures

i) Changes in the carrying amounts of investments in associates for the nine-month periods

ended September 30, 2014 and 2013, are as follows:


Opening carrying amount 4,149,345 4,005,768

Acquisitions 7,266 46,628

Gain from equity method 158,624 80,140

Share of remeasurements for the net

defined benefit liability of associates(1,054) 82

Share of other comprehensive

income(loss) (excluding

remeasurements) of associates(26,327) 3,110

Dividend/ recovery (17,060) (10,250)

Exchange differences (7) (76)

Changes in ownership interest over

associates386 -

Closing carrying amount 4,271,173 4,125,402

ii) Changes in the carrying amounts of investments in joint ventures for the nine-month

periods ended September 30, 2014 and 2013, are as follows:


Opening carrying amount 180,238 177,110

Acquisition 516 -

Gain from equity method 5,744 15,085

Share of other comprehensive

income(loss) (excluding

remeasurements) of joint ventures(6,293) (6,424)

Dividend/ recovery (686) -

Exchange differences 3 -

Closing carrying amount 179,522 185,771


47

(d) Summary of the consolidated financial information on an associate material to the reporting

entity is as follows:

- LG Display Co., Ltd. and its subsidiaries


Current assets 8,767,943 7,731,788

Non-current assets 13,921,177 13,983,496

Total assets 22,689,120 21,715,284

Current liabilities 7,548,692 6,788,919

Non-current liabilities 3,748,194 4,128,945

Total liabilities 11,296,886 10,917,864

Equity attributable to owners of LG Display

Co., Ltd.11,066,183 10,611,173

Non-controlling interests 326,051 186,247

Total equity 11,392,234 10,797,420

2014 2013


Three

months

Nine

months

Three

months

Nine

months

Net sales 6,546,853 18,113,591 6,578,735 19,954,023


Equity holders of LG Display Co., Ltd.


Other comprehensive income(loss), net of tax 99,400 (73,170) (114,164) 11,056

Total comprehensive income, net of tax 449,204 455,010 130,833 363,287

Dividends received from associates - - - -

(e) Reconciliations of the summarized financial information of an associate material to the reporting

entity to the carrying amount of the Group’s interest for the nine-month periods ended


- LG Display Co., Ltd. and its subsidiaries


Opening equity attributable to owners of LG Display

Co., Ltd.10,611,173 10,209,039

Profit for the period 528,180 352,231

Other comprehensive income(loss), net of tax (73,170) 11,056

Closing equity attributable to owners of LG Display

Co., Ltd.11,066,183 10,572,326

Group ownership(%) 37.9 37.9

The Group’s share at the end of the reporting period 4,194,481 4,007,291

Unrealized loss (55,451) (53,316)

Carrying amount at the reporting date 4,139,030 3,953,975


48

(f) The Group’s share in the operating results in the individually insignificant associates and joint

ventures for the nine-month periods ended September 30, 2014 and 2013, is as follows:

2014 2013

(in millions of Korean won) Associates Joint ventures Associates Joint ventures

Three

months

Nine

months

Three

months

Nine

months

Three

months

Nine

months

Three

months

Nine

months

Profit(loss) for the period (5,076) (33,015) 924 5,365 (7,406) (46,685) 1,394 15,188

Other comprehensive

income (loss), net of tax1,307 269 3,653 (6,293) (7,471) (1,032) (16,024) (6,424)

Total comprehensive

income(loss), net of tax (3,769) (32,746) 4,577 (928) (14,877) (47,717) (14,630) 8,764

(g) Accumulated comprehensive income and loss that were not recognized due to discontinuation

of the equity method for the nine-month period ended September 30, 2014 and the year ended

December 31, 2013, are as follows:



Losses of the

equity-method

investees

Accumulated losses

of the equity-

method investees

Losses of the

equity-method

investees

Accumulated losses

of the equity-

method investees

SKT Vietnam PTE., Ltd. 22 52,116 6,701 52,094


Inc.(HLDS) 3,491 3,491 - -

(h) The fair value and book value of marketable associate securities as of September 30, 2014 and


September 30, 2014

Name

Type Shares held

(Unit: shares)

Price per share

(Unit: won)

Fair value Book value


LG Display Co., Ltd. Associate 135,625,000 34,000 4,611,250 4,139,030

Korea Information

Certificate

Authority Inc.1Associate 2,000,000 4,125 8,250 3,141

December 31, 2013

Name

Type Shares held

(Unit: shares)

Price per share

(Unit: won)

Fair value Book value


LG Display Co., Ltd. Associate 135,625,000 25,350 3,438,094 3,975,100

1Listed on KOSDAQ during the nine-month period ended September 30, 2014.


49

11. Borrowings

(a) The carrying amounts of borrowings as of September 30, 2014 and December 31, 2013, are as

follows:


Current

Short-term borrowings 1,010,491 903,798

Current portion of long-term borrowings 866,141 1,346,821

Current portion of debentures 689,271 564,596

Current convertible bonds 215,331 207,508

Sub-total 2,781,234 3,022,723

Non-Current

Long-term borrowings 2,184,744 1,914,366

Debentures 4,463,701 4,004,088

Convertible bonds - 269,852

Sub-total 6,648,445 6,188,306

Total 9,429,679 9,211,029

(b) Details of borrowings are as follows:

i) Short-term borrowings as of September 30, 2014 and December 31, 2013, consist of:

1 The Group entered into a cross-currency swap contract to hedge cash flow risk related to foreign

exchange rates of borrowings in foreign currency (Note 31).


Annual interest

rate at

September 30,

2014

Carrying amount

September 30,

2014 December 31, 2013

General loans 1

HSBC and others 1.00 ~ 13.70 1,010,491 877,476

Borrowings on negotiated trade bills

- - 26,322

Total 1,010,491 903,798


50

ii) Long-term borrowings as of September 30, 2014 and December 31, 2013, consist of:

Annual interest

rate at

September 30,

2014(%)

September 30, 2014

(in millions of Korean won) Maturity date Total Current Non-current

Local currency loans

Kookmin Bank 2014.11.12 4.62 150,000 150,000 -

Kookmin Bank 2014.12.10 4.72 12,500 12,500 -

Kookmin Bank 2015.3.4 5.16 55,000 55,000 -

Kookmin Bank 2016.5.24 4.73 190,000 - 190,000

Kookmin Bank1 2029.4.30 3M CD+1.14 200,000 - 200,000

Shinhan Bank 2016.5.22 2.75 100 67 33

Shinhan Bank 2016.10.19 4.37 118,750 47,500 71,250

Shinhan Bank 2017.2.16 4.60 190,000 - 190,000

Shinhan Bank 2017.2.27 3.63 50,000 - 50,000

Shinhan Bank 2017.9.15 1.75 671 224 447

IBK Securities 2016.10.14 3.35 83,774 - 83,774

Woori Bank 2017.10.28 4.62 190,000 - 190,000

Hana Bank 2015.6.28 3.11 270 270 -

Hana Bank 2015.9.28 3.11 240 240 -

Hana Bank 2016.3.28 3.11 990 660 330

Hana Bank1 2024.1.3 3M CD+0.98 200,000 - 200,000

Korea Development Bank 2014.11.24 4.55 150,000 150,000 -



Korea Development Bank 2016.5.9 3.84 30,000 - 30,000

Korea Development Bank 2018.5.28 3.76 50,000 - 50,000

Korea Finance Corporation 2015.2.28 4.80 100,000 100,000 -

Korea Finance Corporation 2015.9.13 4.57 80,000 80,000 -

Korea Finance Corporation 2015.12.24 4.64 40,000 - 40,000











Foreign currency loans

HSBC and others2016.3.31 ~2019.6.17 1.66 ~ 10.40 288,590 39,680 248,910

Total 3,050,885 866,141 2,184,744

1 The Group entered into an interest rate swap contract to hedge cash flow risk related to floating interest

rates (Note 31).


51

Annual interest

rate at December

31, 2013(%)

December 31, 2013


Local currency loans

Kookmin Bank 2014.11.12 4.62 150,000 150,000 -

Kookmin Bank 2014.12.10 4.72 50,000 50,000 -

Kookmin Bank 2015. 3. 4 5.16 110,000 82,500 27,500

Kookmin Bank 2016. 5.24 4.73 190,000 - 190,000

Nonghyup Bank 2014. 3. 9 4.70 190,000 190,000 -

Shinhan Bank 2014. 9. 8 4.78 22,500 22,500 -

Shinhan Bank 2016. 5.22 2.75 149 66 83

Shinhan Bank 2016.10.19 4.37 142,500 47,500 95,000

Shinhan Bank 2017. 2.16 4.60 190,000 - 190,000

Shinhan Bank 2017. 2.27 3.63 50,000 - 50,000

Shinhan Bank 2017. 9.15 1.75 839 224 615

IBK Securities 2016.10.14 3.35 81,599 - 81,599

Woori Bank 2015. 5. 8 3.85 10,000 - 10,000

Woori Bank 2017.10.28 4.62 190,000 - 190,000

Small & Medium BusinessCorporation 2014.11.16 3.97 68 68 -

Hana Bank 2014. 3.28 2.92 160 160 -

Hana Bank 2015. 6.28 3.22 540 360 180

Hana Bank 2015. 9.28 3.22 420 240 180

Hana Bank 2016. 3.28 3.22 1,485 660 825

Korea Development Bank 2014. 4. 5 4.45 190,000 190,000 -



Korea Development Bank 2015. 3.10 5.06 90,000 - 90,000

Korea Development Bank 2015. 5. 4 4.52 10,000 10,000

Korea Development Bank 2018. 5.28 3.76 50,000 - 50,000

Korea EXIM Bank 2014. 6. 2 4.90 60,000 60,000 -

Korea Finance Corporation 2014. 2.28 4.56 90,000 90,000 -

Korea Finance Corporation 2015. 2.28 4.80 100,000 - 100,000













52

Annual interest

rate at December

31, 2013(%)

December 31, 2013


Foreign currency loans

HSBC and others2016. 3.31~2018.10.15 1.26 ~ 10.40 370,927 172,543 198,384

Total 3,261,187 1,346,821 1,914,366

iii) Debentures as of September 30, 2014 and December 31, 2013, consist of:

Maturitydate

Annual interestrate at

September 30,2014 (%)

September 30, 2014

(in millions of Korean won) Total Current Non-current

Fixed rate notes in local currency Public, non-guaranteed bonds(28th) 2015.11.29 5.10 200,000 - 200,000

Fixed rate notes in local currency Public, non-guaranteed bonds(29th) 2015.2.24 5.01 190,000 190,000 -

Fixed rate notes in local currency Public, non-guaranteed bonds(30-1st) 2015.2.9 4.32 30,000 30,000 -

Fixed rate notes in local currency Public, non-guaranteed bonds(30-2nd) 2017.2.9 4.90 50,000 - 50,000

Fixed rate notes in local currency Public, non-guaranteed bonds(31-1st) 2016.11.12 3.61 70,000 - 70,000


Fixed rate notes in local currency Public, non-guaranteed bonds (56th) 2015.9.9 4.63 190,000 190,000 -

Fixed rate notes in local currency Public, non-guaranteed bonds (57th) 2015.10.22 4.30 190,000 - 190,000

Fixed rate notes in local currency Public, non-guaranteed bonds (58-2nd) 2016.2.16 4.91 60,000 - 60,000


Fixed rate notes in local currency Public, non-guaranteed bonds (61st) 2016.6.29 4.38 190,000 - 190,000



Fixed rate notes in foreign currency Public, non-guaranteed bonds (65th)1 2016.12.2 2.00 237,504 - 237,504

Fixed rate notes in local currency Public, non-guaranteed bonds (66-1st) 2015.9.10 3.18 170,000 170,000 -


Fixed rate notes in local currency Private, non-guaranteed bonds(67th) 2018.3.21 3.11 300,000 - 300,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-1st) 2020.5.23 3.29 100,000 - 100,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-2nd) 2020.5.24 3.29 20,000 - 20,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-3rd) 2023.5.22 3.68 50,000 - 50,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-4th) 2023.5.23 3.68 30,000 - 30,000

Fixed rate notes in local currency Public, non-guaranteed bonds(69-1st) 2015.7.31 2.86 110,000 110,000 -


Fixed rate notes in local currency Public, non-guaranteed bonds(69-3rd) 2020.7.31 3.85 150,000 - 150,000

Floating rate notes in foreign currency Private, guaranteed bonds(70th) 1 2019.1.31 3ML+1.60 210,120 - 210,120




53

Maturitydate


September 30,2014 (%)

September 30, 2014



Floating rate notes in foreign currency Private, non-guaranteed bonds(72nd) 1 2017.6.19 3ML+1.30 210,120 - 210,120




Fixed rate notes in local currency Public, non-guaranteed bonds(73-4th) 2024.1.24 4.44 120,000 - 120,000




Fixed rate notes in local currency Public, non-guaranteed bonds(74-4th) 2029.5.29 4.44 60,000 - 60,000

Fixed rate notes in local currency Private, non-guaranteed bonds(75th) 2026.7.16 3.96 100,000 - 100,000

Less: discount on debentures (14,772) (729) (14,043)

Total 5,152,972 689,271 4,463,701

Maturitydate


December 31,2013(%)

December 31, 2013


Fixed rate notes in local currency Public, non-guaranteed bonds(25-2nd) 2014. 2. 9 5.70 150,000 150,000 -

Fixed rate notes in local currency Public, non-guaranteed bonds(28th) 2015.11.29 5.10 200,000 - 200,000

Fixed rate notes in local currency Public, non-guaranteed bonds(29th) 2015. 2.24 5.01 200,000 - 200,000

Fixed rate notes in local currency Public, non-guaranteed bonds(30-1st) 2015. 2. 9 4.32 50,000 - 50,000

Fixed rate notes in local currency Public, non-guaranteed bonds(30-2nd) 2017. 2. 9 4.90 50,000 - 50,000



Fixed rate notes in local currency Public, non-guaranteed bonds (56th) 2015. 9. 9 4.63 190,000 - 190,000


Fixed rate notes in local currency Public, non-guaranteed bonds (58-1st) 2014. 2.16 4.44 130,000 130,000 -

Fixed rate notes in local currency Public, non-guaranteed bonds (58-2nd) 2016. 2.16 4.91 60,000 - 60,000

Floating rate notes in foreign currency Public, non-guaranteed bonds (59th)1 2014. 4.28 3ML+1.00 179,401 179,401 -

Fixed rate notes in local currency Public, non-guaranteed bonds (60th) 2016. 5.20 4.41 190,000 - 190,000

Fixed rate notes in local currency Public, non-guaranteed bonds (61st) 2016. 6.29 4.38 190,000 - 190,000

Fixed rate notes in local currency Public, non-guaranteed bonds (62-2nd) 2016. 8. 5 4.34 80,000 - 80,000

Floating rate notes in foreign currency Private, non-guaranteed bonds(63rd)1 2014. 8.23 3ML+0.70 105,530 105,530 -

Fixed rate notes in local currency Public, non-guaranteed bonds (64th) 2016. 9.30 4.32 190,000 - 190,000


54

Maturitydate


December 31,2013(%)

December 31, 2013


Fixed rate notes in foreign currency Public, non-guaranteed bonds (65th)1 2016.12. 2 2.00 255,564 - 255,564

Fixed rate notes in local currency Public, non-guaranteed bonds (66-1st) 2015. 9.10 3.18 170,000 - 170,000

Fixed rate notes in local currency Public, non-guaranteed bonds (66-2nd) 2017. 9.10 3.28 130,000 - 130,000

Fixed rate notes in local currency Private, non-guaranteed bonds(67th) 2018. 3.21 3.11 300,000 - 300,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-1st) 2020. 5.23 3.29 100,000 - 100,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-2nd) 2020. 5.24 3.29 20,000 - 20,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-3rd) 2023. 5.22 3.68 50,000 - 50,000

Fixed rate notes in local currency Private, non-guaranteed bonds(68-4th) 2023. 5.23 3.68 30,000 - 30,000

Fixed rate notes in local currency Public, non-guaranteed bonds(69-1st) 2015. 7.31 2.86 110,000 - 110,000

Fixed rate notes in local currency Public, non-guaranteed bonds(69-2nd) 2018. 7.31 3.54 140,000 - 140,000

Fixed rate notes in local currency Public, non-guaranteed bonds(69-3rd) 2020. 7.31 3.85 150,000 - 150,000

Floating rate notes in foreign currency Private, guaranteed bonds(70th) 1 2019. 1.31 3ML+1.60 211,060 - 211,060




Floating rate notes in foreign currency Private, non-guaranteed bonds(72nd) 1 2017. 6.19 3ML+1.30 211,060 - 211,060

Less: discount on debentures (13,931) (335) (13,596)

Total 4,568,684 564,596 4,004,088

1 The Group entered into a cross-currency swap contract to hedge cash flow risk related to floating interest rates

and foreign exchange rates of debentures (Note 31).

Meanwhile, the Parent Company is provided with payment guarantees from Shinhan Bank for principal

and interests of the guaranteed private placement bonds (70th issue) (Note 28).


55

iv) Details of LG Innotek’s Co., Ltd. convertible bonds as of September 30, 2014 and



September 30, 2014

Issue date

Redemption

date

Carrying

amount Current Non-current

Convertible bonds(27th)1 2010.11.11 2014.11.11 199,928 199,928 -

Add: Redemption premium 16,608 16,608 -

Less: Adjustment for conversion

right and discount on bonds(1,205) (1,205) -

Total 215,331 215,331 -


December 31, 2013

Issue date

Redemption

date

Carrying

amount Current Non-current

Convertible bonds(27th)1 2010.11.11 2014.11.11 199,961 199,961 -

Convertible bonds(32nd)1 2013. 9.17 2016. 9.17 299,984 - 299,984

Add: Redemption premium 17,512 16,611 901

Less: Adjustment for conversion

right and discount on bonds (40,097) (9,064) (31,033)

Total 477,360 207,508 269,852

1 Terms and conditions of the 27th issue and 32nd issue convertible bonds, issued by LG Innotek Co., Ltd.,

a subsidiary, are as follows:

Type Convertible bonds(27th issue)Coupon rate 0%

Rate of return 2% (8.3071% terms of payment for redemption premium)

Exercise period 2010.12.11∼2014.10.11

Shares to be issued upon

exerciseRegistered common shares

Major terms and conditions 1. Exercise price : \150,000 per share

2. Right of claim for early redemption:

The early redemption of the bonds to repay the outstanding

balance can be exercised from when three years have elapsed

from the date of issue (November 11, 2013) until one month before

the maturity (October 11, 2014).

However, in order to exercise the early redemption, the closing

price of the common share of the issuing company must exceed

140% of the conversion price for 20 consecutive trading days since

the start of exercise period of the early redemption.


56

Type Convertible bonds(32nd issue)Coupon rate 0%

Rate of return 0.1% (0.3004% terms of payment for redemption premium)

Exercise period 2013.10.17∼2016.08.17

Shares to be issued upon

exerciseRegistered common shares

Major terms and conditions 1. Exercise price : \85,800 per share

2. Right of claim for early redemption:

The early redemption of the bonds to repay the outstanding

balance can be exercised from when one month have elapsed

from the date of issue (October 17, 2013) until one month before

the maturity (August 17, 2016).

However, in order to exercise the early redemption, the closing

price of the common share of the issuing company must exceed

130% of the conversion price for 15 consecutive trading days since

the start of exercise period of the early redemption.

The 32nd issue of convertible bonds at the carrying amount of \273,760 million and the 27th

issue of convertible bonds at the carrying amount of\35 million issued by LG Innotek Co., Ltd.

have been converted into shares during the nine-month period ended September 30, 2014. As

a result, the equity of LG Innotek Co., Ltd. increased by \279,344 million. Accordingly, the

controlling interest of the Group decreased from 47.9% to 40.8% during the nine-month period

ended September 30, 2014. Equity attributable to owners of the Parent Company increased

by\20,180 million and non-controlling interests by\259,164 million. Unexercised convertible

bonds (the 32nd issue) amounting to \13 million have been early repaid on June 6, 2014.

The early redemption option embedded in the 27th issue is not separated as the exercise price

is approximately equal to the amortized cost of the debt instrument.

(c) Payment schedule of borrowings as of September 30, 2014, is as follows:

Less than Over

(in millions of Korean won) Total 1 year 2 years 5 years 5 years

Short-term borrowings 1,041,265 1,041,265 - - -Current portion of long-term

borrowings 882,104 882,104 - - -

Current portion of debentures 712,757 712,757 - - -

Current convertible bonds 216,536 216,536 - - -

Long-term borrowings 2,582,266 93,601 635,410 1,346,680 506,575

Debentures 5,207,215 160,899 1,241,473 2,298,832 1,506,011

Total 10,642,143 3,107,162 1,876,883 3,645,512 2,012,586

The above cash flows are calculated at nominal value based on the earliest maturity dates, and

include cash flows of principal and interests.


57

12. Post-employment Benefits

Defined Benefit Plan

(a) The amounts recognized in the consolidated statements of financial position as of September

30, 2014 and December 31, 2013, are determined as follows:


Present value of funded obligations 2,162,040 1,849,385

Present value of unfunded obligations 35,158 33,549

Sub-total 2,197,198 1,882,934

Fair value of plan assets (1,268,678) (1,302,015)

Net defined benefit liability 928,520 580,919

(b) The amounts recognized in the consolidated statements of income for the three-month and

nine-month periods ended September 30, 2014 and 2013, are as follows:

2014 2013

(in millions of Korean won) Three months Nine months Three months Nine months

Current service cost 78,994 239,958 76,354 225,998

Net interest cost 6,462 18,914 5,108 15,383

Past service cost - 25,592 - -

Managing cost 335 1,113 343 1,021

Total 85,791 285,577 81,805 242,402

(c) The line items in which expenses are included for the three-month and nine-month periods

ended September 30, 2014 and 2013, are as follows:

2014 2013


Manufacturing costs 39,795 139,136 41,392 121,522

Selling and marketing

expenses15,653 48,088 14,004 39,824

Administrative expenses 7,182 20,638 4,256 14,758

Research and

development expenses20,946 71,100 20,382 60,340

Service costs 2,215 6,615 1,771 5,958

Total 85,791 285,577 81,805 242,402


58

(d) Changes in the defined benefit obligations for the nine-month periods ended September 30,



At January 1 1,882,934 1,648,334

Current service cost 239,958 225,998

Interest expense 55,880 44,826

Past service cost 25,592 -

Remeasurements for:- Actuarial gain(loss) arising from changes

in financial assumptions 117,050 (23,374)

- Actuarial gain (loss) arising fromexperience adjustments (22,365) -

Benefits paid (100,797) (66,009)


Business combinations and changes in

scope of consolidation- 1,521

Others (1,054) (2,278)

At September 30 2,197,198 1,824,767

(e) Changes in the fair value of plan assets for the nine-month periods ended September 30, 2014

and 2013, are as follows:


At January 1 1,302,015 1,018,196

Interest income 36,966 29,443

Remeasurements for:

- Return on plan assets (6,669) (1,749)

Employer contributions 6,393 8,517

Benefits paid (68,908) (38,213)


Business combinations and changes in

scope of consolidation- 979

Managing cost (1,113) (1,021)

Others (6) (525)

At September 30 1,268,678 1,012,688

(f) The principal actuarial assumptions used as of September 30, 2014 and December 31, 2013,

are as follows:


Weighted average of discount rate 3.4% 4.1%

Weighted average of future salary increase 6.1% 6.1%

The discount rates applied to the Parent Company and subsidiaries are between 0.9%~9.5% (2013:

0.9%~9.5%), and the expected rates of future salary increase are between 4.0%~13.0% (2013:

4.0%~13.0%).


59

(g) The sensitivity analysis of the defined benefit obligation to changes in principal assumptions as

of September 30, 2014 and December 31, 2013, is as follows:

(in millions of Korean won) 1% increase 1% decrease

Discount rate (173,550) 199,816

Future salary increase 189,857 (175,973)

The above sensitivity analyses are based on a change in an assumption while holding all other

assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions

may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial

assumptions is calculated using the projected unit credit method, the same method applied when

calculating the defined benefit obligations.

(h) Plan assets as of September 30, 2014 and December 31, 2013, consist of:



Amount Composition(%) Amount Composition(%)Securities combined with derivatives(principal and interest protected) 907,985 71.6 897,349 68.9

Time deposits and others 360,693 28.4 404,666 31.1

Total 1,268,678 100.0 1,302,015 100.0

Defined Contribution Plan

Recognized expense related to the defined contribution plan during the nine-month period ended

September 30, 2014, amounts to \ 6,533 million (2013: \ 6,293 million).

13. Provisions

Changes in provisions for the nine-month periods ended September 30, 2014 and 2013, are as

follows:

2014

(in millions of Korean won) Warranty Sales returns Restoration

Litigation

and others Total

At January 1, 2014 612,101 63,183 11,265 975,947 1,662,496

Additions 648,613 195,136 2,831 3,164 849,744

Utilizations (605,553) (189,644) (1,066) (21,555) (817,818)

Exchange differences (21,631) (2,728) (145) (10,761) (35,265)

At September 30, 2014 633,530 65,947 12,885 946,795 1,659,157

Current 577,251 65,947 - 41,380 684,578

Non-current 56,279 - 12,885 905,415 974,579


60

2013

(in millions of Korean won) Warranty Sales returns Restoration

Litigation

and others Total

At January 1, 2013 598,329 61,498 8,882 908,444 1,577,153

Additions 721,539 196,180 2,521 107,642 1,027,882

Utilizations (717,463) (193,667) (835) (46,873) (958,838)

Exchange differences (8,863) (1,331) 61 (9,325) (19,458)

Increase due to business

combination 131 - - - 131

At September 30, 2013 593,673 62,680 10,629 959,888 1,626,870

Current 539,830 62,680 - 41,242 643,752

Non-current 53,843 - 10,629 918,646 983,118

14. Paid-in Capital

(a) As of September 30, 2014 and December 31, 2013, the number of shares authorized is 600

million.

The preferred shareholders have no voting rights and are entitled to preferred dividends at a rate of

one percentage point over that of common shares. This preferred dividend rate is not applicable to

stock dividends. In addition, the preferred shareholders have the same rights on the remaining

assets as common shareholders. Repayment and conversion are not applicable to preferred shares.

(b) Share premium balances are as follows:


Share premium 3,088,179 3,088,179

Share premium includes the amount of ￦1,876,153 million, less capital stock amounting to

￦783,961 million and capital adjustment amounting to ￦155,593 million from net book amount of

net assets amounting to￦2,815,707 million taken over upon the split-off on April 1, 2002. In addition,

the amount of ￦331,766 million paid in excess of par value at the issuance of common shares

(merged with LG IBMPC Co., Ltd.) and the exercise of conversion right and warrants in 2005 and

2006 are included. The excess in paid-in capital amounting to ₩880,260 million over the par value

was recognized as share premium at the issuance of common shares in 2011.

Par value

per share

(in won)


Number of

shares issued

Amount

(in millions)

Number of

shares issued

Amount

(in millions)

Common stock 5,000 163,647,814 818,239 163,647,814 818,239

Preferred stock 5,000 17,185,992 85,930 17,185,992 85,930

Total 180,833,806 904,169 180,833,806 904,169


61

15. Retained Earnings

Retained earnings as of September 30, 2014 and December 31, 2013, consist of:


Legal reserve1153,190 149,503

Discretionary reserve25,666,922 5,872,588

Unappropriated retained earnings 3,560,434 2,863,432

Total 9,380,546 8,885,523

1 The Commercial Code of the Republic of Korea requires the Parent Company to appropriate, as a legal

reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its

issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred

to capital stock or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of

capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess

legal reserves may be distributed.2 The Parent Company separately accumulates a discretionary reserve for research and human resource

development through appropriation of retained earnings, which has been included as deductible expense for

the corporate income tax return according to the Special Tax Treatment Law. If reserves are reversed, the

amount may be distributed in accordance with the terms of related tax laws.

16. Accumulated Other Comprehensive Income (loss)

Details of accumulated other comprehensive income (loss) as of September 30, 2014 and

December 31, 2013, consist of:

(in millions of Korean won) September 30, 2014 December 31, 2013Accumulated other comprehensiveincome(loss) of associates and joint ventures (125,376) (92,756)

Cash flow hedge (20,817) 5,034

Available-for-sale financial assets 10,151 11,266

Currency translation differences (1,036,265) (830,984)

Total (1,172,307) (907,440)


62

17. Other Components of Equity

Details of other components of equity as of September 30, 2014 and December 31, 2013, consist

of:


Treasury shares1 (44,893) (44,893)

Consideration for conversion rights 9,891 9,891

Gain on disposal of treasury shares 2,183 2,183

Capital transactions within the Group2 (177,430) (198,410)

Total (210,249) (231,229)

1 The Parent Company has treasury shares consisting of 763,168 common shares (2013: 763,168 common

shares) and 4,690 preferred shares (2013: 4,690 preferred shares) at the reporting date. The Parent

Company intends to either grant these treasury shares to employees and directors as compensation, or to

sell them in the future.

2 The amounts include gain (loss) from transactions with non-controlling interests and other reserves of

subsidiaries, net of related deferred tax. Changes during the period are due to the conversion of the

convertible bonds issued by LG Innotek Co., Ltd., amounting to \20,180 million, and due to the exercise of

appraisal rights for the shares of a subsidiary, LG-Shaker Co., Ltd., amounting to \800 million (Note 1).

18. Net Sales

Details of net sales for the three-month and nine-month periods ended September 30, 2014 and

2013, are as follows:

2014 2013


Sales of goods 14,737,783 44,029,215 13,734,723 42,767,038

Sales of services 116,747 330,018 91,610 258,549

Royalty income 61,836 206,419 65,819 199,480

Total 14,916,366 44,565,652 13,892,152 43,225,067


63

19. Expenses by Nature

Expenses that are recorded by nature for the three-month and nine-month periods ended

September 30, 2014 and 2013, consist of:

2014 2013

(in millions of Korean won) Three months Nine months Three months Nine monthsChanges in finishedproducts, work-in-processand others

(212,949) (346,661) (211,326) (239,779)

Usage of raw materials,merchandise and other 9,472,056 28,077,791 8,837,328 27,435,409

Employee benefitexpense 1,639,078 4,882,729 1,638,075 4,891,390

Depreciation andamortization 474,357 1,428,816 498,930 1,416,922

Advertising expense 334,390 839,239 295,847 814,054

Promotion expense 226,120 597,604 192,930 532,499

Transportation expense 401,311 1,235,606 416,657 1,273,389

Commission expense 687,571 2,067,240 691,632 1,966,094

Other expenses 1,433,161 4,211,804 1,314,284 4,088,528

Total 114,455,095 42,994,168 13,674,357 42,178,506

1 Cost of sales, selling and marketing expenses, administrative expenses, research and development expenses

and service costs are included.

20. Selling and Marketing Expenses, Administrative Expenses

Details of general operating expenses for the three-month and nine-month periods ended


2014 2013


Wages and salaries 690,441 2,040,728 694,246 2,094,556

Severance benefits 51,609 160,118 40,940 122,597

Welfare expense 145,164 431,700 144,380 434,433

Transportation expense 395,959 1,216,494 410,514 1,253,504

Rental expense 104,824 318,988 107,831 325,660

Commission expense 497,839 1,478,780 489,504 1,391,968

Depreciation 65,083 190,896 65,420 192,517

Amortization 45,758 139,969 45,861 174,028

Taxes and dues 46,122 118,685 61,631 150,724

Advertising expense 334,390 839,239 295,847 814,054

Promotion expense 226,120 597,604 192,930 532,499

R&D expense 80,708 242,149 91,039 300,277

Service related expense 235,391 607,046 237,540 642,500

Bad debt expense 633 26,175 (18,441) 12,174

Other 209,850 602,771 215,820 620,454


64

2014 2013


Total 3,129,891 9,011,342 3,075,062 9,061,945

21. Financial Income

Financial income for the three-month and nine-month periods ended September 30, 2014 and 2013,

consists of:

2014 2013


Interest income 22,578 69,809 20,783 66,551

Foreign exchange gain 97,967 208,901 53,761 227,802

Gain on derivatives 4,404 17,125 960 17,252

Other 25 107 1 1

Total 124,974 295,942 75,505 311,606

22. Financial Expenses

Financial expenses for the three-month and nine-month periods ended September 30, 2014 and

2013, consist of:

2014 2013


Interest expense 113,427 342,588 102,578 305,287

Foreign exchange loss 77,057 210,160 79,589 284,064

Loss on derivatives 5,615 22,204 2,695 7,190Loss on disposal of tradereceivables 5,987 13,962 4,989 14,860

Other 336 1,932 350 1,281

Total 202,422 590,846 190,201 612,682


65

23. Other Non-operating Income

Other non-operating income for the three-month and nine-month periods ended September 30,

2014 and 2013, consists of:

2014 2013


Dividend income 5 322 - 327

Exchange differences 205,473 742,408 320,276 895,463

Gain on derivatives 4,732 10,253 2,451 3,229Gain on disposal ofproperty, plant andequipment

8,089 24,973 9,625 17,257

Gain on disposal ofintangible assets 11 14,902 1,073 1,338

Gain on disposal ofinvestments in associatesand joint ventures

- 386 - -

Other 33,516 82,737 6,461 26,179

Total 251,826 875,981 339,886 943,793

24. Other Non-operating Expenses

Other non-operating expenses for the three-month and nine-month periods ended September 30,

2014 and 2013, consist of:

2014 2013


Exchange differences 404,254 963,052 360,607 1,097,955

Loss on derivatives 853 14,335 3,066 4,558Loss on disposal ofproperty, plant andequipment

15,662 25,320 2,317 11,672

Loss on disposal ofintangible assets 2,352 16,926 3,814 13,603

Impairment loss onavailable-for-salefinancial assets

- 1,114 45 2,498

Other 83,501 151,457 19,713 105,707

Total 506,622 1,172,204 389,562 1,235,993

25. Income Tax Expense

In accordance with the Local Tax Act which was amended and announced on January 1, 2014, tax

credit carryforwards amounting to￦84,776 million recognized as deferred tax assets of the Parent

Company and subsidiaries domiciled in the Republic of Korea at December 31, 2013, was expensed

during the reporting period.


66

26. Earnings per Share

The Group has no potential dilutive common shares. Accordingly, basic earnings per share is

identical to diluted earnings per share.

(a) Basic earnings per common share for the three-month and nine-month periods ended

September 30, 2014 and 2013, is as follows:

2014 2013

Three

months

Nine

months

Three

months

Nine

months

Profit attributable to common shares1

(in millions of won) 144,254 545,500 75,784 216,695

Weighted average number of common

shares outstanding (unit: shares)2 162,884,646 162,884,646 162,884,646 162,884,646

Basic earnings per common share (in won) 886 3,349 465 1,330

(b) Basic earnings per preferred share for the three-month and nine-month periods ended


2014 2013

Three

months

Nine

months

Three

months

Nine

months

Profit attributable to preferred shares1

(in millions of won) 15,430 58,184 8,208 23,501

Weighted average number of preferredshares outstanding (unit: shares)2 17,181,302 17,181,302 17,181,302 17,181,302

Basic earnings per preferred share (in won) 899 3,387 478 1,368

1 Profit attributable to common and preferred shares for the three-month and nine-month periods ended


2014 2013


Three

months

Nine

months

Three

months

Nine

monthsProfit for the year attributable to the

Parent Company(A) 159,684 603,684 83,992 240,196

Common share dividends(B) 8,145 24,433 8,145 24,433

Preferred share dividends(C) 1,073 3,221 1,073 3,221

Undistributed earnings (D=A-B-C) 150,466 576,030 74,774 212,542

Undistributed earnings available forcommon shares(E) 136,109 521,067 67,639 192,262

Undistributed earnings available forpreferred shares (F) 14,357 54,963 7,135 20,280

Profit attributable to commonshares(G=B+E) 144,254 545,500 75,784 216,695

Profit attributable to preferredshares(H=C+F) 15,430 58,184 8,208 23,501


67

2 Weighted average numbers of shares for the three-month and nine-month periods ended September 30, 2014

and 2013, are calculated as follows:

2014 2013


Three

months

Nine

months

Three

months

Nine

months

Common shares outstanding 163,647,814 163,647,814 163,647,814 163,647,814

Common treasury shares (763,168) (763,168) (763,168) (763,168)

Common shares 162,884,646 162,884,646 162,884,646 162,884,646

Weighted average number of commonshares outstanding 162,884,646 162,884,646 162,884,646 162,884,646

Preferred shares outstanding 17,185,992 17,185,992 17,185,992 17,185,992

Preferred treasury shares (4,690) (4,690) (4,690) (4,690)

Preferred shares 17,181,302 17,181,302 17,181,302 17,181,302

Weighted average number of preferredshares outstanding 17,181,302 17,181,302 17,181,302 17,181,302

27. Information on Cash Flow

Cash flows from operating activities are prepared using the indirect method. Details of cash

generated from operating activities are as follows:


Profit for the period 707,049 286,151

Adjustments:

Interest expense, net 272,779 238,736

Foreign exchange loss, net 115,375 51,702

Loss(gain) on derivatives, net 9,161 (8,733)

Depreciation 1,155,025 1,154,369

Amortization 323,643 277,605Loss on disposal of property, plant and

equipment and intangible assets, net 2,371 6,680

Provisions for severance benefits 285,577 242,402

Provisions 849,744 1,027,882

Income tax expense 437,676 262,359

Gain from equity method (164,368) (95,225)

Other 207,861 195,282

3,494,844 3,353,059

Changes in operating assets and liabilities:

Increase in trade receivables (1,491,422) (332,437)Decrease(increase) in loans and other

receivables 45,831 (169,595)

Increase in inventories (1,733,904) (1,065,669)

Increase in other assets (88,234) (119,521)


68


Increase in trade payables 1,916,690 1,056,083

Increase(decrease) in other payables 426,484 (357,117)

Decrease in provisions (817,818) (958,838)

Increase(decrease) in other liabilities (68,963) 474,875

Payment of defined benefit liability (31,889) (27,796)

Deposit in plan assets, net (35,577) (35,190)

(1,878,802) (1,535,205)

Cash generated from operating activities 2,323,091 2,104,005

Significant transactions not affecting cash flows for the nine-month periods ended September 30,



Reclassification of construction-in-progress

of property, plant and equipment618,066 805,196

Reclassification of intangible assets in

progress174,866 168,028

Reclassification of long-term prepayment to

intangible assets67,937 71,447

Reclassification of current maturities of

borrowings and debentures1,111,971 1,509,379

Other payables to acquire property, plant and

equipment125,628 114,391

Other payables to acquire intangible assets 2,546 31,948

Conversion of subsidiaries’ convertible bonds 273,795 -

The assets and liabilities of the transferred business

i) The Group transferred the Data Storage business to Hitachi-LG Data Storage Inc. and its

subsidiaries on March 1, 2013.

ii) Total consideration received and the assets and liabilities of the transferred business are

as follows:


69

(in millions of Korean won) Amount

Total consideration1 29,733

Assets of the transferred business:

Trade receivables 7,378

Loans and other receivables 68

Inventories 24,657

Other assets 153

Property, plant and equipment 15,483

Intangible assets 731

Liabilities of the transferred business:

Trade payables 17,425

Net defined benefit liabilities 1,312

1 This total consideration has been collected as of December 31, 2013.

28. Contingencies

(a) At the end of the reporting period, borrowings are collateralized by property, plant and equipment,

including land, buildings and machinery, and intangible assets with maximum value of ￦213,853

million (2013:￦338,726 million) and the book value of￦264,196 million (2013: ￦654,711 million).

In addition, buildings held by the Group are provided to Industrial Bank of Korea and others, as

creditors of land, in order to guarantee obligations of landlords with maximum value of ￦8,020

million (2013:￦8,860 million) and the book value of ￦1,334 million (2013:￦1,833 million).

(b) At the end of the reporting period, the Parent Company and domestic subsidiaries are provided

with guarantees of ￦146,482 million (2013: ￦146,332 million) from Seoul Guarantee Insurance

and three other banks relating to the performance guarantees and others. The Parent Company is

provided with guarantee of principal USD 200 million (2013: USD 200 million) and interests from

Shinhan Bank for the guaranteed private placement bonds.

(c) At the end of the reporting period, the financial guarantee provided by the Parent Company to

external parties other than related parties amounts to USD 16 million (2013: USD 8 million).

(d) In December 2012, the European Commission imposed a penalty on the Parent Company for

anti-competitive activities among CRT (Cathode Ray Tube) manufacturers as a result of an

investigation. The Parent Company recognized such penalty amounting to EUR 491,567 thousand

as expected loss. However, the Parent Company appealed against the decision of the European

Commission. The ultimate amount of loss resulting from the investigation may differ from the

amount of penalty imposed and could be material. The Parent Company is provided with a

performance guarantee of EUR 513,688 thousand from Shinhan bank and others for the above.


70

In addition, the Parent Company is under investigation and has been named as defendants in class

actions in countries including the United States and Canada, in connection with the alleged anti-

competitive activities among CRT manufacturers. There are also a number of other legal actions,

disputes, and investigations that remain pending at the end of the reporting period. Details of

relevant provisions are not disclosed as such information could affect the outcome of the legal

actions and investigations. The management believes that the consequences of those lawsuits

would not have material impact on the financial position of the Group.

As of the reporting date, LG Display Co., Ltd., one of the associates, has been named as a

defendant in a case related to the infringement of patents. In addition, LG Display Co., Ltd. is

currently under the investigation for anti-competitive activities. The outcome of the case may affect

the gain or loss from the equity method valuation. The Group does not have individual responsibility

in the case and the investigation above.

At the end of the reporting period, Hitachi-LG Data Storage Inc. (HLDS), an associate of the Group,

is currently under the investigation from the European Commission in connection with the alleged

anti-competitive activities among Optical Disk Drive (ODD) manufactures. The outcome of the

investigation may affect gain or loss from equity method valuation. The Group does not have

responsibility in the investigation above.

There are pending lawsuits other than above. However, management does not expect the outcome

of the litigation will have a material effect on the Group’s financial position.


71

29. Commitments

(a) At the end of the reporting period, the Parent Company has overdraft facility agreements with

various banks, including Shinhan Bank, with a limit of￦195,500 million (2013:￦195,500 million).

Its overseas subsidiaries, including LG Electronics European Shared Service Center B.V., have

overdraft facility agreements with a limit of ￦1,155,296 million (2013: ￦1,140,667 million) with

various banks, including Citibank and others.

In addition, LG Innotek Co., Ltd. and its subsidiaries and other three subsidiaries, have overdraft

facility agreements with various banks, including Hana Bank, with a limit of￦116,932 million (2013:

￦129,013 million).

(b) At the end of the reporting period, the Parent Company has sales agreements for export trade

receivables with Shinhan Bank and other 25 banks amounting to ￦3,401,843 million (2013:

￦4,066,071 million). The Parent Company has corporate electronic settlement services contracts

for collection of trade receivables with Hana Bank for up to ￦126,000 million (2013: ￦126,000

million).

In addition, LG Innotek Co., Ltd. and its subsidiaries have trade receivables transfer agreements

with Hana Bank and others amounting to ￦339,537 million (2013: ￦413,110 million) at the end of

the reporting period.

In addition, the European subsidiaries, including LG Electronics European Shared Service Center

B.V., transfer their trade receivables to Societe Generale Bank on a revolving basis, for up to USD

228 million (2013: USD 434 million).

(c) At the end of the reporting period, the Parent Company has corporate electronic settlement

services contracts with Shinhan Bank and other seven banks for up to ￦840,000 million (2013:

￦895,450 million) which guarantee the payment of trade accounts payable in case the suppliers

sell their trade receivables.

In addition, LG Innotek Co., Ltd. and its subsidiaries and other four domestic subsidiaries, provided

payment guarantees to financial institutions, including Woori Bank, amounting to￦221,304 million

(2013:￦291,332 million) in connection with the discounting of notes which are paid to their suppliers.

(d) LG Innotek Co., Ltd. has an agreement for underwriting commercial paper amounting to

￦34,000 million (2013:￦34,000 million). In addition, at the end of the reporting period, the Group

has other trade financing agreements and loan commitments with financial institutions, including

Industrial Bank of Korea.


72

(e) Contractual commitments for the acquisition of assets

The property, plant and equipment, and intangible assets contracted for, but not yet acquired at the

end of the reporting period are as follows:


Property, plant and equipment 36,410 16,772

Intangible assets 2,687 13,627

Total 39,097 30,399

(f) Operating lease commitments – the Group as lessee

The future aggregate minimum lease payments under non-cancellable operating leases at the end

of the reporting period are as follows:

September 30, 2014


No later than

1 year

Later than 1 year and

no later than 5 years

Over

5 years Total

Buildings and offices 190,755 360,598 29,007 580,360

Vehicles 26,983 39,894 - 66,877

Equipment 22,281 21,641 - 43,922

Total 240,019 422,133 29,007 691,159

Lease payment under operating lease recognized in the statement of income during the nine-month

period ended September 30, 2014, amounts to￦218,876 million (2013:￦194,473 million).

(g) Operating lease commitments – the Group as lessor

The Group has an operating lease agreement regarding the healthcare rental business that lends

water purifiers to customers. The future minimum lease receipts under operating leases at the end

of the reporting period are as follows:

September 30, 2014


No later than

1 year

Later than 1 year and

no later than 3 years Total

Healthcare rental 90,320 144,620 234,940

The Group recognized ￦66,690 million (2013: ￦56,399 million) in lease income during the nine-

month period ended September 30, 2014.

At the end of reporting period, acquisition cost of operating lease assets amounts to￦79,729 million

(2013: ￦73,910 million) and their accumulated depreciation amounts to ￦36,294 million (2013:

￦29,780 million).


73

(h) Trademark license commitments

At the end of the reporting period, the Group has various agreements as follows:

Purpose Related products Provided by Used byUse of license Mobile/LED Qualcomm Incorporated

and othersThe Group

Provision of license Home appliance The Group Panasonic Corporationand others

30. Related Party Transactions

(a) The related parties of the Group are as follows:

Classification

Name

September 30, 2014 December 31, 2013 NoteSignificantlyinfluencing theGroup

LG Corp. LG Corp. -

Associates LG Display Co., Ltd., and subsidiaries LG Display Co., Ltd., and subsidiaries -

LG Display Co., Ltd. LG Display Co., Ltd. -

LG Display Germany GmbH LG Display Germany GmbH -

LG Display Shanghai Co.,Ltd. LG Display Shanghai Co.,Ltd. -

LG Display Yantai Co.,Ltd. LG Display Yantai Co.,Ltd. -

LG. Display America,Inc. LG Display America,Inc. -

LG Display Japan Co., Ltd. LG Display Japan Co., Ltd. -

LG Display Taiwan Co., Ltd. LG Display Taiwan Co., Ltd. -

LG Display Nanjing Co., Ltd. LG Display Nanjing Co., Ltd. -

LG Display Poland Sp. zo.o. LG Display Poland Sp. zo.o. -

LG Display Guangzhou Co., Ltd LG Display Guangzhou Co., Ltd -

LG Display Shenzhen Co., Ltd. LG Display Shenzhen Co., Ltd. -

LG Display Singapore Pte. Ltd. LG Display Singapore Pte. Ltd. -

LG Display U.S.A Inc LG Display U.S.A Inc -

L&T Display Technology (Xiamen)

Limited

L&T Display Technology (Xiamen)

Limited-

L&T Display Technology (Fujian)

Limited

L&T Display Technology (Fujian)

Limited-

LUCOM Display Technology (Kunshan)

Limited-

LG Display Reynosa S.A. de C.V. LG Display Reynosa S.A. de C.V. -

Nanumnuri Co., Ltd. Nanumnuri Co., Ltd. -

LG Display (China) Co., Ltd. LG Display (China) Co., Ltd. -

Unified Innovative Technology, LLC - -

Ericsson-LG Co., Ltd., and subsidiaries Ericsson-LG Co., Ltd., and subsidiaries -

Ericsson-LG Co., Ltd. Ericsson-LG Co., Ltd. -

LN Srithai Com Co., Ltd. LN Srithai Com Co., Ltd. -


74

Classification

Name

September 30, 2014 December 31, 2013 Note

- Nexer Inc. -

- Ericsson-LG Europe B.V. -

- Ericsson-LG Canada Inc. -

Novera Optics Inc. Novera Optics Inc. -

Ericsson-LG Enterprise Co., Ltd. Ericsson-LG Enterprise Co., Ltd. -

Hitachi LG Data Storage Inc.(HLDS),

and subsidiaries

Hitachi LG Data Storage Inc.(HLDS),

and subsidiaries-

Hitachi-LG Data Storage Inc.(HLDS) Hitachi-LG Data Storage Inc.(HLDS) -

Hitachi-LG Data Storage Korea,Inc. Hitachi-LG Data Storage Korea,Inc. -

Hitachi-LG Data Storage(Huizhou),

Ltd. Hitachi-LG Data Storage(Huizhou), Ltd.-

Hitachi Electronic Products

(Malaysia) Sdn. Bhd.

Hitachi Electronic Products (Malaysia)

Sdn. Bhd.-

LG Fuel Cell Systems Inc., and

subsidiaries

LG Fuel Cell Systems Inc., and

subsidiaries-

LG Fuel Cell Systems Inc. LG Fuel Cell Systems Inc. -

LG Fuel Cell Systems Korea Inc. LG Fuel Cell Systems Korea Inc. -

Korea Information Certificate Authority

Inc.

Korea Information Certificate Authority

Inc.-

Global OLED Technology LLC Global OLED Technology LLC -

SKT Vietnam PTE., Ltd. SKT Vietnam PTE., Ltd. -

One-Red, LLC One-Red, LLC -

Joint ventures Arcelik-LG Klima Sanayi ve Ticaret

A.S.(LGEAT)

Arcelik-LG Klima Sanayi ve Ticaret A.S.

(LGEAT)-

LG Holdings(HK) Ltd. and subsidiaries LG Holdings(HK) Ltd. and subsidiaries -

LG Holdings(HK) Ltd. LG Holdings(HK) Ltd. -

Beijing LG Building Development

Company

Beijing LG Building Development

Company-

EIC PROPERTIES PTE LTD. EIC PROPERTIES PTE LTD. -

- LG Fund for Enterprises -

LG-MRI LLC - -

Other relatedparties LG CNS Co., Ltd., and subsidiaries LG CNS Co., Ltd., and subsidiaries

LG Corp.’sSubsidiary

LG CNS Co., Ltd. LG CNS Co., Ltd. -

LG N-Sys Inc. LG N-Sys Inc. -

BNE PARTNERS, Inc. BNE PARTNERS, Inc. -

Ucess Partners Co.,Ltd. Ucess Partners Co.,Ltd. -

KOREA ELECOM Ltd. KOREA ELECOM Ltd. -

Ever On Co., Ltd. Ever On Co., Ltd. -

LG System Philippines Inc. LG System Philippines Inc. -

LG CNS China Inc. LG CNS China Inc. -

LG CNS Europe B.V LG CNS Europe B.V -

LG CNS Japan Co., Ltd. LG CNS Japan Co., Ltd. -

LG CNS America Inc. LG CNS America Inc. -


75

Classification

Name

September 30, 2014 December 31, 2013 Note

LG CNS India Pvt. Ltd. LG CNS India Pvt. Ltd. -

PT LG CNS Indonesia PT LG CNS Indonesia -

Entrue Brasil Servicos de T.I. Ltda. Entrue Brasil Servicos de T.I. Ltda. -

LG CNS Shenyang Inc. LG CNS Shenyang Inc. -

LG CNS Tianjin Inc. LG CNS Tianjin Inc. -

SBI-LG Systems Co., Ltd. SBI-LG Systems Co., Ltd. -

LG CNS Colombia S.A.S LG CNS Colombia S.A.S -

Ucess Philippines, Inc. Ucess Philippines, Inc. -

Oneseen Skytech Co., Ltd. Oneseen Skytech Co., Ltd. -

LG CNS Malaysia Sdn. Bhd. LG CNS Malaysia Sdn. Bhd. -

LG CNS Saudi Arabia LLC LG CNS Saudi Arabia LLC -

TXCNS Healthcare, LLC TXCNS Healthcare, LLC -

LG CNS GB Ltd. LG CNS GB Ltd. -

LG CNS Smart Green Co,.Ltd. LG CNS Smart Green Co,.Ltd. -

LLC LG CNS RUS LLC LG CNS RUS -

- LG N-Sys China, Inc -

- LG CNS UK Limited -

Collain Healthcare, LLC - -

SERVEONE Co., Ltd., and subsidiaries SERVEONE Co., Ltd., and subsidiariesLG Corp.’ssubsidiary

SERVEONE Co., Ltd. SERVEONE Co., Ltd. -

LG-TOYO Engineering LG-TOYO Engineering -

Konjiam Yewon Konjiam Yewon -

Serveone(Nanjing).Co.,LTD Serveone(Nanjing).Co.,LTD -

Serveone Construction(Nanjing)

Co.,Ltd.

Serveone Construction(Nanjing)

Co.,Ltd.-

Serveone(Guangzhou).Co.,LTD - -

SERVEONE VIETNAM Co.,Ltd - -

LG Siltron Incorporated and

subsidiariesLG Siltron Incorporated and subsidiaries

LG Corp.’ssubsidiary

LG Siltron Incorporated LG Siltron Incorporated -

LG Siltron America, Inc. LG Siltron America, Inc. -

LG Siltron JAPAN Inc. LG Siltron JAPAN Inc. -

LUSEM CO., LTD. LUSEM CO., LTD.LG Corp.’ssubsidiary

LG Management Development Institute LG Management Development InstituteLG Corp.’ssubsidiary

LG SPORTS Ltd. LG SPORTS Ltd.LG Corp.’ssubsidiary

LG Solar Energy Inc. LG Solar Energy Inc.LG Corp.’ssubsidiary

LG Holdings Japan Co.,Ltd. -LG Corp.’ssubsidiary

LG MMA Ltd. LG MMA Ltd.LG Corp.’s

joint venture


76

(b) Major balances and transactions

i) Major transactions for the nine-month periods ended September 30, 2014 and 2013, areas follows:

(in millions of Korean won)2014

Purchases

Classification Name Sales1

Raw

materials

Fixed and

intangible

assets

General

Operating

Expenses Others

Total

Purchases

Significantlyinfluencing theGroup

LG Corp. 402 - - 114,940 - 114,940

AssociatesLG Display Co., Ltd., and

subsidiaries760,533 4,859,325 - 9,723 - 4,869,048

Ericsson-LG Co., Ltd., and

subsidiaries7,070 4,407 - - - 4,407

Hitachi LG Data Storage Inc.,

and subsidiaries57,483 461,206 - - - 461,206

LG Fuel Cell Systems Inc.,

and subsidiaries25 - - - - -

Korea Information Certificate

Authority Inc.- - - 21 - 21

Subtotal 825,111 5,324,938 - 9,744 - 5,334,682

Joint venturesArcelik-LG Klima Sanayi ve

Ticaret A.S.46,359 91,348 - - - 91,348

LG HOLDINGS (HK)

LIMITED and subsidiaries- - - 2,179 - 2,179

EIC PROPERTIES PTE LTD. - - - 640 - 640

Subtotal 46,359 91,348 - 2,819 - 94,167Other relatedparties SERVEONE Co., Ltd., and

subsidiaries16,063 853,536 8,814 96,001 3,563 961,914

LG Siltron Incorporated 3,469 1,649 - 24 - 1,673

LG CNS Co., Ltd., and

subsidiaries22,992 47,478 26,744 310,299 - 384,521

LG SPORTS Ltd. 403 - - 10,119 - 10,119

LG Management

Development Institute12 327 - 19,553 - 19,880

LUSEM CO., LTD. 42,287 22,504 - 411 - 22,915

LG MMA Ltd. 1,198 36 - - - 36

LG Holdings Japan Co., Ltd. 9 - - 1,542 - 1,542

Subtotal 86,433 925,530 35,558 437,949 3,563 1,402,600

Total 958,305 6,341,816 35,558 565,452 3,563 6,946,389


77

(in millions of Korean won)2013

Purchases

Classification Name Sales1

Raw

materials

Fixed and

intangible

assets

General

Operating

Expenses Others

Total

Purchases


LG Corp. 1,029 - - 111,736 - 111,736

AssociatesLG Display Co., Ltd., and

subsidiaries665,451 4,791,357 193 24,840 - 4,816,390

Ericsson-LG Co., Ltd., and

subsidiaries14,668 4,747 - - - 4,747

Hitachi LG Data Storage Inc.,

and subsidiaries11,042 334,935 - - - 334,935

LG Fuel Cell Systems Inc.,

and subsidiaries36 - - - - -

Korea Information Certificate

Authority Inc.- - - 1 - 1

Subtotal 691,197 5,131,039 193 24,841 - 5,156,073

Joint venturesArcelik-LG Klima Sanayi ve

Ticaret A.S.35,379 119,365 - - - 119,365

LG HOLDINGS (HK)

LIMITED and subsidiaries- - - 2,059 - 2,059

EIC PROPERTIES PTE LTD. - - - 641 - 641

Subtotal 35,379 119,365 - 2,700 - 122,065Other relatedparties SERVEONE Co., Ltd., and

subsidiaries10,587 819,041 5,517 151,538 - 976,096

LG Siltron Incorporated 6,583 8,565 - 3,055 - 11,620


subsidiaries24,665 87,434 32,085 232,268 - 351,787

LG SPORTS Ltd. 10 - - 8,452 - 8,452

LG Management

Development Institute26 337 - 21,996 - 22,333

LUSEM CO., LTD. 51,618 18,964 - 8,973 - 27,937

Subtotal 93,489 934,341 37,602 426,282 - 1,398,225

Total 821,094 6,184,745 37,795 565,559 - 6,788,099

1 Including disposal of property, plant, and equipment, and others.


78

ii) Major balances as of September 30, 2014 and December 31, 2013, are as follows:

(in millions of Korean won) September 30, 2014

Receivables Payables

Classification Name

Trade

receivables Loans

Other

receivables Total

Trade

payables Borrowings

Other

payables Total


LG Corp. - - 22,914 22,914 - - 2,682 2,682

AssociatesLG Display Co., Ltd.,

and subsidiaries271,313 - 17,409 288,722 969,948 - 42,937 1,012,885

Ericsson-LG Co., Ltd.,

and subsidiaries322 - 31 353 1,065 - - 1,065

Hitachi-LG Data

Storage Inc., and

subsidiaries

10,199 - - 10,199 45,781 - 28 45,809

Korea Information

Certificate Authority

Inc

- - - - - - 21 21

Subtotal 281,834 - 17,440 299,274 1,016,794 - 42,986 1,059,780Joint ventures

Arcelik-LG Klima

Sanayi ve Ticaret A.S.4,359 - - 4,359 2,421 - - 2,421

LG HOLDINGS (HK)

LIMITED and subs- - - - - - 1,437 1,437

EIC PROPERTIES

PTE LTD.- - - - - - 74 74

Subtotal 4,359 - - 4,359 2,421 - 1,511 3,932Other relatedparties SERVEONE Co., Ltd.,

and subsidiaries3,491 - 60,757 64,248 241,723 - 40,503 282,226

LG Siltron

Incorporated1,021 - - 1,021 887 - 1,541 2,428


subsidiaries3,284 - 2 3,286 26,092 - 108,058 134,150

LG SPORTS Ltd. 11 - 4 15 39 - 23 62

LG Management

Development Institute- - 17,864 17,864 - - 2,193 2,193

LUSEM CO., LTD. 7,945 - 2 7,947 3,931 - 559 4,490

LG MMA Ltd 975 - - 975 - - - -

LG Holdings Japan

Co., Ltd.- - 309 309 - - - -

Subtotal 16,727 - 78,938 95,665 272,672 - 152,877 425,549

Total 302,920 - 119,292 422,212 1,291,887 - 200,056 1,491,943


79

(in millions of Korean won) December 31, 2013

Receivables Payables

Classification Name

Trade

receivables Loans

Other

receivables Total

Trade

payables Borrowings

Other

payables Total


LG Corp. - - 22,045 22,045 - - 8,893 8,893

AssociatesLG Display Co., Ltd.,

and subsidiaries 143,597 - 23,014 166,611 621,040 - 85 621,125

Ericsson-LG Co., Ltd.,

and subsidiaries 165 - 45 210 2,222 - 150 2,372

Hitachi-LG Data

Storage Inc., and

subsidiaries 11,122 - 586 11,708 49,126 - 84 49,210

Subtotal 154,884 - 23,645 178,529 672,388 - 319 672,707Joint ventures

Arcelik-LG Klima

Sanayi ve Ticaret A.S. 8,227 - - 8,227 5,687 - 2 5,689

LG HOLDINGS (HK)

LIMITED and subs - - - - - - 1,460 1,460

EIC PROPERTIES

PTE LTD. - - - - - - 77 77

Subtotal 8,227 - - 8,227 5,687 - 1,539 7,226Other relatedparties SERVEONE Co., Ltd.,

and subsidiaries 1,558 - 60,736 62,294 245,900 - 65,207 311,107

LG Siltron

Incorporated 9,052 - - 9,052 744 - 3,170 3,914


subsidiaries 7,439 - 663 8,102 24,323 - 238,876 263,199

LG SPORTS Ltd. - - - - 121 - 132 253

LG Management

Development Institute - - 17,864 17,864 - - 1,457 1,457

LUSEM CO., LTD. 9,122 - 30 9,152 4,776 - 475 5,251

LG MMA Ltd 35 - - 35 - - - -

Subtotal 27,206 - 79,293 106,499 275,864 - 309,317 585,181

Total 190,317 - 124,983 315,300 953,939 - 320,068 1,274,007


80

iii) Major capital transactions for the nine-month periods ended September 30, 2014 and 2013

are as follows:

(in millions of Korean won) 2014

Financing loan

transactions

Financing borrowing

transactions

Classification Name

Dividend

Income

Cash

investments

(Recovery)

Disposal of

shares Loans Repayments Borrowings Repayments

Associates Ericsson-LG Co., Ltd. 17,000 - - - - - -

LG Fuel Cell Systems - 7,267 - - - - -

Korea Information

Certificate Authority Inc.60 - - - - - -

Subtotals 17,060 7,267 - - - - -

Joint ventures LG Fund for Enterprises 6 (680) - - - - -

Totals 17,066 6,587 - - - - -

(in millions of Korean won) 2013

Financing loan

transactions

Financing borrowing

transactions

Classification Name

Dividend

Income

Cash

investments

(recovery)

Disposal of

shares Loans Repayments Borrowings Repayments

Associates Ericsson-LG Co., Ltd. 10,250 - - - - - -


Inc.- 43,500 - - - - -

Subtotals 10,250 43,500 - - - - -Other related

partiesLG CNS Co., Ltd.,1

- 17,000 - - - - -

Totals 10,250 60,500 - - - - -

1The Group acquired 100% of V-ENS Co., Ltd.'s ordinary shares from LG CNS Co., Ltd. in May

2013 (Note 32).

iv) During the nine-month period ended September 30, 2013, the Group transferred the Data

Storage business to Hitachi-LG Data Storage Inc. and its subsidiaries (Note 27).

(c) The compensation paid or payable to key management of the Group for the nine-month periods

ended September 30, 2014 and 2013, consists of:


Wages and salaries 10,074 8,609

Severance benefits 3,192 1,245

Total 13,266 9,854

Key management refers to the directors who have significant control and responsibilities on

the Group’s business plans, operations and control.


81

(d) There is no payment guarantee provided by the Group for the funding sources of the related

parties other than subsidiaries at the end of the reporting period.

(e) There is no collateral provided by the Group for the funding sources of related parties at the

end of the reporting period.

(f) The Group has not recognized any bad debt expense or allowance for trade receivables from

related parties at the end of the reporting period.

31. Risk Management

Financial Risk Management

The Group’s financial risk management (“FRM”) policy supports each business division to achieve

excellent performance solidly and continuously against market risk, credit risk and liquidity risk. In

addition, FRM helps the Group to enhance cost competitiveness through cost-efficient financing

cost by improving financial structure and effective cash management.

While cooperating with other divisions, the finance team in the Parent Company mainly implements

FRM. This involves setting-up risk management policies and recognizing, evaluating and hedging

risks from a global point of view.

The Group anticipatively and systematically manages the financial risks over global business

activities through its four overseas treasury centers in New Jersey(United States),

Amsterdam(Netherlands), Beijing(China), and Singapore in coordination with the finance team in

the Parent Company. And it also helps to improve overseas subsidiaries’ business competitiveness

by performing integration of their finance functions.

The Group mitigates the adverse effects from financial risk by monitoring the risk periodically and

updating FRM policy each year.

The information of the carrying amount and profit or loss of each category of financial instruments

and the details of borrowings related to the financial risk management are presented in Note 5 and

Note 11, respectively.

(a) Market risk

i) Foreign exchange risk

Due to its multinational business operations, the Group is mainly exposed to foreign exchange

risk on the US Dollar and Euro, Brazilian Real, Russian Ruble and Japanese Yen.

The purpose of foreign exchange risk management is to provide the foundation of a stable

business operation by minimizing the uncertainty and volatility of foreign exchange gains and

losses from foreign exchange rate fluctuations.


82

The Group’s foreign exchange risk management is implemented under its own foreign exchange

policy through which the Group can minimize the exposure to foreign exchange risk by

preferentially making equal amount of foreign exchange assets and liabilities from general

operating activities. And the Group continuously considers efficient foreign exchange risk hedges

against its remaining exposure with derivative financial instruments and scrutinizes changes in

foreign exchange exposure and the results of hedging activities on a monthly basis. Speculative

foreign exchange trading is prohibited in principle.

As of September 30, 2014 and December 31, 2013, if the foreign exchange rate of the Korean

won fluctuated by 10% while other variables were fixed, the effects on income(loss) before tax

would be as follows:



10% increase 10% decrease 10% increase 10% decrease

USD/KRW (74,248) 74,248 (156,312) 156,312

EUR/KRW 46,961 (46,961) 41,062 (41,062)

Other1/KRW 73,184 (73,184) 81,864 (81,864)

1 Other currency includes Brazilian Real, Russian Ruble and Japanese Yen.

The above sensitivity analysis is done with foreign currency denominated assets and liabilities

which are not in the Group’s functional currency.

ii) Interest rate risk

The Group is exposed to interest rate risk through changes in interest-bearing liabilities or assets.

The risk mainly arises from borrowings and financial deposits with variable interest rates linked

to market interest rate changes in the future. The objective of interest rate risk management lies

in improving corporate value by minimizing uncertainty caused by fluctuations in interest rates

and minimizing net interest expense.

Though the Group is exposed to interest rate risk from financial deposits and borrowings held

with variable interest rates. The Group periodically establishes countermeasures by the

monitoring trends of internal and external interest rates, and minimizes the risk of net interest

expense by properly operating short-term borrowings with variable interest rates and deposits.


83

At the end of the reporting period, if interest rates fluctuate by 1% without other variables

changing, the effects on income and expenses related to borrowings and financial deposits with

variable interest rates for the nine-month periods ended September 30, 2014 and 2013, are as

follows:


2014 2013


Interest expense 4,409 (4,409) 9,053 (9,053)

Interest income 20,150 (20,150) 16,044 (16,044)

iii) Details of derivatives contracts are as follows:

Hedging purposes

The Group entered into the cross-currency swap contracts to hedge cash flow risks related to

the floating interest rates and foreign exchange rates of debentures.

September 30,

2014 Contractor

Contracted

amount

(in millions)

Contracted

currency

rate

Interest rate

(received)

Interest rate

(paid)

Contract

date

Expiration

date

USD/KRW CRS

Shinhan Bank USD200USD/KRW

1,113.63ML +160bp 3.22% 2013.7.11 2019.1.31

BNP PARIBAS and

othersUSD200

USD/KRW

1,052.13ML +130bp 3.42% 2013.11.28 2017.6.19

CHF/KRW CRS UBS and others CHF215CHF/KRW

1,213.62.00% 3.64~3.74% 2012.7.6 2016.12.2

USD/BRL CRS Standard Chartered USD25USD/BRL

2.21701.73% 10.90% 2013.10.23 2014.10.27

USD20USD/BRL

2.34901.70% 10.65% 2013.11.26 2014.12.16

USD15USD/BRL

2.42451.96% 10.50% 2013.12.20 2015.1.6

USD25USD/BRL

2.38352.05% 10.95% 2014.2.25 2015.3.17

USD20USD/BRL

2.28921.35% 11.20% 2014.4.17 2014.12.19

USD10USD/BRL

2.28921.35% 11.10% 2014.4.17 2014.12.19

USD20USD/BRL

2.28921.35% 11.02% 2014.4.17 2014.12.19

USD80USD/BRL

2.28921.30% 10.90% 2014.7.7 2014.12.23

JP Morgan USD20USD/BRL

2.39501.61% 10.65% 2013.12.3 2014.12.19


84

September 30,

2014 Contractor

Contracted

amount

(in millions)

Contracted

currency

rate

Interest rate

(received)

Interest rate

(paid)

Contract

date

Expiration

date

CITIBANK USD15USD/BRL

2.38671.62% 10.50% 2013.12.20 2015.1.6

ITAU UNIBANCO USD25USD/BRL

2.33341.33% 10.95% 2014.2.25 2015.3.5

The Group entered into the interest rate swap contracts to hedge cash flow risks related to the

floating interest rates of debentures.

September 30, 2014 Contractor

Contracted amount

(in millions of

Korean won)

Interest rate

(received)

Interest rate

(paid)

Contract

date

Expiration

date

Interest rate swapHana Bank 200,000 3M CD+98bp 4.53% 2014. 1. 3 2024. 1. 3

Kookmin Bank 200,000 3M CD+114bp 4.52% 2014. 4.29 2029.4.30

At the end of the reporting period, the swap contracts are evaluated at fair value and the loss on

valuation of the effective portion amounting to￦51,538 million in 2014 (2013: loss on valuation

amounting to￦2,663 million) after applying the tax effect, is recognized in other comprehensive

income(loss). The Group has reclassified ￦25,687 million to loss from equity in 2014 (2013:

￦10,067 million). Therefore, other comprehensive loss from cash flow hedges amounts to

￦25,851 million in 2014 (2013: other comprehensive income of ￦7,404 million) after applying

the tax effect.

Trading purposes

The Group entered into the currency forward contracts to hedge against possible future changes

in foreign exchange rates. The subsidiaries’ currency forward contracts as of September 30,

2014 and related profit or loss for the nine-month periods ended September 30, 2014, are as

follows:

(in millions of Korean won) Purchase Sale

Gain on

valuation

Loss on

transaction

Currency forward 170,689 170,601 1,757 (3,920)

iv) Price risk

The Group is exposed to price risk through securities owned by the Group classified as available-

for-sale financial assets on the consolidated financial statements.

The listed securities owned by the Group are traded in the open market, and related to KOSDAQ

and NASDAQ Indices.

The table below summarizes the impact of increases/decreases of the listed securities on the

equity (before applying the tax effect). The analysis is based on the assumption that the equity

indexes had increased/decreased by 30% with all other variables held constant and all the


85

Group’s listed securities moved according to the historical correlation with the index.




KOSPI - - 1 (1)

KOSDAQ 3,804 (3,804) 3,095 (3,095)

NASDAQ 599 (599) 1,213 (1,213)

The valuation and the reclassified amounts of the cash flow hedging derivative and the available-

for-sale financial asset related to the market risk above are presented in Note 7 and Note 31,

respectively.

(b) Credit risk

The Group operates a consistent Global Credit / TR (trade receivables) policy to manage credit risk

exposures.

In regard to receivables, the Group operates an integrated receivable insurance program with the

world top three receivable insurers (Euler Hermes, Atradius, Coface) and Korea Trade Insurance

Corporation (K-SURE). In an effort to minimize receivable credit risk, the Group applies the credit

rating of the counterparty when determining the insurance coverage. In addition, the Group performs

stringent credit risk managements based on credit valuation criteria for receivables without

insurance coverage or collateral.

(c) Liquidity risk

The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to

manage liquidity risk proactively. The Group assigns experts in four RTCs to manage liquidity risk

in overseas subsidiaries efficiently.

The Group maintains adequate amount of cash and committed credit facilities in Woori Bank,

Kookmin Bank, and Shinhan Bank to cope with potential financial distress.

In addition, the Group is able to source funds any time in the domestic and international financial

markets as of the end of reporting period because it has good investment credit grades from Korea

Investors Service, Korea Ratings and NICE Information Service of AA, and Standard & Poors and

Moody’s of BBB and Baa3 respectively, as of October 31, 2014.

Cash flow information on maturity of borrowings and financial guarantee limit are presented in Note

11 and Note 28, respectively.


86

Capital Risk Management

The Group’s capital risk management purpose is to maximize shareholders’ value through

maintaining a sound capital structure. The Group monitors financial ratios, such as liability to equity

ratio and net borrowing ratio each month and implements required action plan to improve the capital

structure.

Debt-to-equity ratio and net borrowing ratio are as follows:

(in millions of Korean won, except for ratios) September 30, 2014 December 31, 2013

Liability (A) 25,247,873 22,838,695

Equity (B) 13,255,591 12,689,369

Cash and cash equivalents and current

financial deposits (C)3,017,409 2,713,166

Borrowings (D) 9,429,679 9,211,029

Debt-to-equity ratio (A/B) 190.5% 180.0%

Net borrowings ratio (D-C)/B 48.4% 51.2%


87

Fair Value Estimation

(a) Carrying amount and fair values of the Group’s financial assets and liabilities are as follows:



Carrying

amount Fair value

Carrying

amount Fair value

Current financial asset items

[Assets at fair value]

Financial assets at fair value through

profit or loss

Other financial assets 3,008 3,008 16,080 16,080

Derivatives for hedging purposes


[Assets at amortized cost]

Loans and other receivables

Cash and cash equivalents 2,949,709 1 2,645,270 1

Financial deposits 67,700 1 67,896 1

Trade receivables 8,277,702 1 7,117,402 1

Other receivables 545,112 1 596,505 1

Held-to-maturity financial assets

Other financial assets 49 1 31 1

Non-current financial asset items

[Assets at fair value]


Other financial assets - - 94 94

Available-for-sale financial assets


[Assets at amortized cost]

Loans and other receivables

Financial deposits 81,641 81,641 96,992 96,992

Other receivables 564,494 542,838 601,978 577,737

Held-to-maturity financial assets

Other financial assets 2,643 1 2,545 1

[Assets at cost]


Other financial assets 33,852 2 33,515 2

Total 12,553,201 11,199,187


88



Carrying

amount Fair value

Carrying

amount Fair value

Current financial liability items

[Liabilities at fair value]

Financial liabilities at fair value

through profit or loss

Other financial liabilities 917 917 684 684


Other financial liabilities 1,730 1,730 10,100 10,100

[Liabilities at amortized cost]

Trade payables 7,404,914 1 5,691,114 1

Borrowings 2,781,234 1 3,022,723 1

Other payables 2,448,853 1 2,829,686 1

[Other liabilities]


Non-current financial liability items

[Liabilities at fair value]


through profit or loss

Other financial liabilities - - 773 773


Other financial liabilities 62,807 62,807 9,371 9,371

[Liabilities at amortized cost]

Borrowings 6,648,445 6,918,924 6,188,306 6,308,304

Other payables 17,162 17,444 27,670 27,670

[Other liabilities]


Total 19,366,609 17,781,052

1 Excluded from disclosure as the carrying amount is the rational approximate fair value.

2 Unlisted equity securities are calculated at cost because the variability in the range of the estimated future

cash flows is significant and the probabilities of the various estimates within the range cannot be reasonably

assessed.

3 Measured at the higher of the amount determined in accordance with Korean IFRS 1037, ‘Provisions,

Contingent Liabilities and Contingent Assets’, and the amount initially recognized less cumulative

amortization recognized in accordance with Korean IFRS 1018, ‘Revenue’.

No significant changes in the business and economic environment that affects the fair value of

financial assets and financial liabilities occurred during the reporting period.


89

(b) Fair value measurements of assets and liabilities

i) Fair value hierarchy and measurement method

The fair value is defined as the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants. The fair value

measurement is to estimate the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the measurement

date under current market conditions. The Group measures fair value using valuation

techniques that maximizes the use of market information and minimizes the use of

unobservable inputs.

Financial instruments measured at fair value are categorized within the fair value hierarchy,

and the defined levels are as follows:

- Level 1: Financial instruments measured at the quoted prices in an active markets for

identical assets or liabilities are included in ‘level 1’. Assets or liabilities categorized within

‘level 1’ include financial instruments such as marketable equity securities traded in the

Korea Exchange.

- Level 2: When financial instruments are measured by using a valuation technique, if all

significant inputs required to measure the fair value of an instrument are observable, the

instrument is included in ‘level 2’. Assets or liabilities categorized within ‘level 2’ include

financial instruments such as derivative financial instruments.

- Level 3: When financial instruments are measured by using a valuation technique, if one

or more of the significant inputs are unobservable market data, the instrument is included in

‘level 3’. Assets or liabilities categoryzed within ‘level 3’ include financial instruments such

as debt securities.

The fair value of financial instruments traded in active markets is based on quoted market

prices at the reporting date. A market is regarded as active if quoted prices are readily and

regularly available from an exchange, dealer, broker, an entity within the same industry,

pricing service, or regulatory agency, and those prices represent actual and regularly

occurring market transactions on an arm’s length basis. The quoted market price used for

financial assets held by the Group is the current bid price. These instruments are included

in ‘level 1’. Instruments included in ‘level 1’ comprise primarily equity investments classified

as available for sale.

The fair value of financial instruments that are not traded in an active market is determined

by using valuation techniques. The Group uses various valuation techniques and makes

judgments based on current market conditions. These valuation techniques maximize the

use of observable market data where it is available and rely as little as possible on entity

specific estimates. If all significant inputs required to measure the fair value of an instrument

are observable, the instrument is included in ‘level 2’.


90

If one or more of the significant inputs are not based on observable market data, the

instrument is included in ‘level 3’. Financial instrument included ‘level 3' uses other method

including discounting cash flow method and others.

ii) Financial instruments measured at fair value

Fair value hierarchy classifications of the financial assets and financial liabilities that are

measured at fair value as of September 30, 2014 and December 31, 2013, are as follows:

September 30, 2014

(in millions of Korean won) Level 1 Level 2 Level 3 Total

Assets



- Marketable equity securities 15,276 - - 15,276

- Debt securities - - 1,531 1,531

Financial assets at fair value

through profit or loss - 3,008 - 3,008

Derivatives for hedging purposes - 10,484 - 10,484

Liabilities



through profit or loss - 917 - 917


December 31, 2013


Assets



- Marketable equity securities 17,720 - - 17,720

- Debt securities - - 1,840 1,840




Liabilities





The above fair value amounts are recurring fair value measurements.

In case of investments in equity instruments that do not have a quoted market price in an active


91

market and their fair value cannot be measured reliably, they are measured at cost and not

included in the above fair value measurement hierarchy.

① Valuation technique and inputs for fair value measurements categorized within level 2

Valuation technique and inputs for fair value measurements categorized within level 2 as

of September 30, 2014 and December 31, 2013, are as follows:

Fair value


September 30,

2014

December

31, 2013

Valuation

techniques Inputs

Assets



through profit or loss 3,008 16,080Discounted cash

flow

Discount rate and

exchange rate

Derivatives for hedging purposes 10,484 1,413Discounted cash

flow

Discount rate and

exchange rate

Liabilities



through profit or loss 917 1,457Discounted cash

flow

Discount rate and

exchange rate

Derivatives for hedging purposes 64,537 19,471Discounted cash

flow

Discount rate and

exchange rate

② Fair value measurements categorized within level 3

Changes in financial assets and financial liabilities that are measured at fair value and

categorized within level 3 for the nine-month periods ended September 30, 2014 and 2013,

are as follows:


At January 1 1,840 2,670

Total gain(loss) for the period

Loss included in profit for the period1 (131) -

Gain included in other comprehensive income 13 -

Purchase, issue, sales and settlement

Purchase - 1,205

Sale (191) (835)

At September 30 1,531 3,0401 Gain and loss included in profit for the period are interest income amounting to \169 million and

impairment loss on available-for-sale financial assets amounting to \300 million(2013: nil)


92

Valuation technique, inputs, and range of significant but unobservable inputs of financial

instruments that are measured at fair value and categorized within level 3 as of September

30, 2014 and December 31, 2013, as of follows:

Fair value Significant but

Range of

Significant but

(in millions of Korean

won)

September

30, 2014

December

31, 2013

Valuation

techniques Inputs

unobservable

inputs

unobservable

inputs


Available-for-sale

financial assets

- Debt securities 1,531 1,840Discounted

cash flowDiscount rate

Discount rate

(credit spread)3.7%~8.1%

iii) Financial instruments not measured at fair value but for which the fair value is disclosed

Financial instruments not measured at fair value but for which the fair value is disclosed as of

September 30, 2014 and December 31, 2013, are as follows:

September 30, 2014


Assets

Non-current financial deposits - - 81,641 81,641

Non-current other receivables - - 542,838 542,838

Liabilities

Non-current borrowings - - 6,918,924 6,918,924

Non-current other payables - - 17,444 17,444

December 31, 2013


Assets

Non-current financial deposits - - 96,992 96,992

Non-current other receivables - - 577,737 577,737

Liabilities

Non-current borrowings - - 6,308,304 6,308,304

Non-current other payables - - 27,670 27,670


93

① Valuation technique and inputs for fair value measurements categorized within level 2

As of September 30, 2014, there are no financial instruments that are not measured at fair

value but for which the fair value is disclosed and categorized within level 2.

② Disclosure in relation to fair value measurements categorized within level 3

Valuation technique, inputs and unobservable inputs of financial instruments that are not

measured at fair value but for which the fair value is disclosed and categorized within level 3

as of September 30, 2014 and December 31, 2013, are as follows:

September 30, 2014 December 31, 2013Significant but

Range of

Significant but

(in millions of

Korean won)

Carrying

amount Fair value

Carrying

amount Fair value

Valuation

techniques Inputs

Unobservable

inputs

unobservable

inputs

Assets

Non-current

financial

deposits

81,641 81,641 96,992 96,992Discounted

cash flow

Discount rate

and Exchange

rate

Discount rate 0.1% ~ 3.1%

Non-current

other

receivables

564,494 542,838 601,978 577,737Discounted

cash flow

Discount rate

and Exchange

rate


Liabilities

Non-current

borrowings

6,648,445 6,918,924 6,188,306 6,308,304Discounted

cash flow

Discount rate

and Exchange

rate


Non-current

other

payables

17,162 17,444 27,670 27,670Discounted

cash flow

Discount rate

and Exchange

rate



94

32. Business Combinations

i) The Group is promoting the smart car and electricity car components business as future

strategic business by utilizing current capability driven by its IT, home appliances and parts

technology. The Group acquired 100% of V-ENS Co., Ltd.'s ordinary shares from its related

party, LG CNS Co., Ltd., on May 1, 2013, for the merger with V-ENS Co., Ltd., which has

strength in the machinery field, including vehicle design and practical vehicle verification. The

Group's intention is to amplify the value of fostering business and to accelerate the growth of

auto parts business in the future.

ii) The following table summarizes the consideration paid and the fair value of assets acquired

and liabilities assumed:

(in millions of Korean won) Amount

Consideration

Cash and cash equivalents 17,028

Total consideration 17,028

Recognized amounts of identifiable assets acquired and liabilities

assumed

Current assets

Cash and cash equivalents 13,474

Trade receivables 40,748

Loans and other receivables 1,092

Inventory 1,017

Current income tax assets 188

Other current assets 1,482

Non-current assets

Financial deposit 3

Loans and other receivables 39

Property, plant and equipment 6,044

Intangible assets 5,934

Other non-current assets 436

Current liabilities

Trade payables (17,489)

Other payables (8,162)

Current income tax liabilities (31)

Provisions (131)

Other current liabilities (27,074)

Non-current liabilities

Net defined benefit liability (542)

Total identifiable net assets 17,028

Goodwill -


95

iii) The acquisition-related costs amounting to ￦293 million were all expensed at the time they

were incurred.

iv) The above fair value of trade receivables and other receivables are the same as the gross

contractual amounts.

v) Sales and net loss contributed by V-ENS Co., Ltd. included in the interim consolidated

statements of income from May 1, 2013, were\49,500 million and\5,066 million, respectively.

If V-ENS Co., Ltd. had been consolidated from January 1, 2013, sales and profit for the period

in the consolidated statement of comprehensive income for the nine-month period ended

September 30, 2014, would have been as follows:

(in millions of Korean won) Before adjustments Adjustment After adjustments

Sales 43,225,067 41,362 43,266,429

Profit for the period 286,151 4,226 290,377

vi) As a result of the acquisition, V-ENS Co., Ltd. and its subsidiaries (V-ENS (M) Sdn., Bhd and

VENS BEIJING VEHICLE ENGINEERING CO.,LTD.) were incorporated into the consolidated

subsidiaries. The Group merged with V-ENS Co., Ltd. on July 1, 2013, based on the resolution

approved by the board of directors on April 24, 2013. It was a merger with exchange ratio of 1

to 0 without issuance of new stock. As it falls under both a small scale merger (for the Parent

Company) and a simplicity merger (for V-ENS Co., Ltd.), the approval of the shareholders was

replaced by a resolution of the board of directors dated May 23, 2013. This merger does not

have any impact on the consolidated financial statements.

33. Event After the Reporting Period

On October 28, 2014, the Board of Directors of the Parent Company resolved to discontinue

production and sales of PDP Module and PDP TV due to the decrease in demand of PDP TV

products and the discontinuation of supply from major suppliers. The date of discontinuing the

operations is expected to be November 30, 2014, and the sales generated by discontinued

operations for the year ended December 31, 2013 and the nine-month period ended September

30, 2014, are \1,368,074 million and \796,945 million, respectively.

lg electronics · other financial assets 5,7,31 13,541 17,430 inventories 8 6,288,079 4,838,830 ......

Documents